The biggest behemoths in the absolute return sector have failed to beat their own benchmarks and deliver returns higher than inflation over the last five years.
Standard Life Investments Global Absolute Return Strategy (Gars), BNY Mellon Real Return and Invesco Perpetual Global Targeted Returns are among the names that have fallen short of achieving their performance targets, research from AJ Bell has revealed.
Using data from FE and Morningstar, the platform group looked at the 10 funds in the sector that have racked up the heaviest outflows over the past year.
It found that eight out of 10 had failed to meet their five-year target return. The other two – Merian Global Equity Absolute Return and Aviva Investors Multi-Strategy Targeted Income – did not have a clear benchmark and a five-year track record respectively.
Of the nine funds that do have five years’ performance data, five failed to hand investors a return over inflation.
| Name | Outflows over 1 year (£) | 1yr returns (%) | 5yr return (%) | Beaten performance target? |
| Standard Life Investments Global Absolute Return Strategy | -£9.7bn | 4.88% | 5.81% | No |
| Merian Global Equity Absolute Return | -£4.0bn | -7.86% | 10.54% | NA* |
| BNY Mellon Real Return | -£2.9bn | 10.06% | 19.29% | No |
| GAM MultiBond Absolute Return Bond Plus | -£1.4bn | 1.17% | -0.42% | No |
| Kames Absolute Return Bond | -£1.4bn | 0.68% | 4.75% | No |
| BNY Mellon Absolute Return Equity | -£1.2bn | -4.68% | 2.42% | No |
| GAM MultiBond Absolute Return Bond | -£1.0bn | 0.82% | -1.11% | No |
| Invesco Global Targeted Returns | -£925m | -0.85% | 10.48% | No |
| Aviva Investors Multi-Strategy Targeted Return | -£719m | 0.74% | 8.78% | No |
| Aviva Investors Multi-Strategy Targeted Income | -£679m | 4.90% | NA | NA |
| Sector average | – | 0.96% | 9.48% | – |
| UK inflation | – | 1.98% | 7.68% | – |
| Source: Morningstar/FE/AJ Bell. Data accurate to 30/06/19. Morningstar flow figures are an estimate. Inflation measure based on CPI.*Fund has no clear benchmark | ||||
AJ Bell personal finance analyst Laura Suter noted the sector has seen a “fall from grace” as “lacklustre performance” has prompted investors to abandon the sector in droves.
“Lacklustre performance has marred the sector recently and the funds seeing the largest outflows have failed to meet their own performance benchmarks,” she said. “We’ve also had a period where inflation has spiked and investors have seen many of these so-called safe haven funds fail to even beat inflation over the past five years.”
Data from the Investment Association shows the sector has seen net outflows for the last 11 months, with investors pulling £5.4bn from funds.
Though Suter noted that some investors have been willing to put money into the sector, she said the level of inflows have paled in comparison to the level of outflows.
“The collective inflows of the top 20 funds over the past year doesn’t even amount to half the outflows seen on the SLI Gars strategy alone.”
Gars and Merian lead outflows
SLI Gars and Merian Global Absolute Equity Return, two of the largest funds in the sector, saw the highest level of redemptions over the past year.
Investors pulled about £9.7bn from SLI’s mega absolute return strategy during the period, while Merian’s fund registered £4bn of outflows, however Suter notes the bulk of this has been over the past six months when investors withdrew £2.6bn of money.
Merian Global Absolute Equity Absolute Return was the worst performer of the lot during the last 12 months, delivering an 8% loss but over five years is the second strongest with returns of 10.54% ahead of inflation and the sector average of 9.6%.
The situation is reversed for Gars, which has failed to beat inflation over five years but seen performance pick up recently. SLI’s £8.2bn fund has returned 4.9% over the last year, trouncing the 1% average return of the sector. Over five years it has returned just 5.81%.
On a five year-basis Gam’s Multibond Absolute Return strategy was the worst performer, delivering a loss of 1.1%. Suter noted it has not even met its own “low benchmark” of beating the three-month Libor rate which was 2.9% over five years. The fund is among those that was frozen and liquidated by the Swiss fund group following its suspension of lead manager Tim Haywood.
