Absolute return dumped by the bucket load in tricky markets

Investors pulled £1.6bn towards the end of 2018 as markets sold-off

Targeted Absolute Return retained its title of worst-selling sector in November 2018, in a difficult month for the retail funds industry as a whole, as investors continued to pull money from the products during a period of market volatility.

Investors pulled £756m from the Investment Association sector during the month adding to £864m worth of redemptions in October when the market sell-off begun.

One investment manager Portfolio Adviser spoke with pointed to Standard Life Investments Global Absolute Returns Strategies (Gars) as the primary source of the sector outflows. It has fallen from a £20.7bn behemoth at the start of 2018 to £12.6bn for the period ended October 2018. Over the period its performance was -6.3%, equivalent to approximately £1.2bn based on the starting assets under management, highlighting the effect outflows have had on the fund.

During November 2018, SLI Gars rose 0.4% compared with 0.5% losses across the IA Targeted Absolute Return sector, according to FE Analytics.

‘Counter intuitive’

Investors and advisers have become disillusioned with absolute return funds, said Tilney managing director Jason Hollands.

“It does seem counter intuitive that in a period of extreme market turbulence, absolute return fund sales would be so weak,” Hollands said. “It is pure conjecture, but when you consider the overall pattern of de-risking across a host of asset classes during the month, then perhaps this was a sign of already cautious investors capitulating altogether and moving into cash.”

Mixed asset was the best-selling asset class with £350m of sales. Property was the only other asset class to enjoy inflows, bringing in a mere £19m, although funds tagged as ethical also enjoyed a net positive month, bringing in £83m.

Willis Owen head of personal investing Adrian Lowcock said: “Mixed assets benefit from a continued outsourcing of the investment responsibility to multi-asset managers – a trend we have seen since RDR and is set to grow in popularity as platforms promote their own funds and robos offer automated solutions.”

Worst month since Brexit

Overall, November was the worst month for retail net outflows since the UK vote to leave the European Union in June 2016 with investors pulling £2.1bn across sectors. Total assets under management in retail funds is £1.2trn.

Fixed income suffered outflows of £1.2bn with the Sterling Strategic Bond sector suffering the most with £564m of redemptions. Equity funds lost £467m of client money.

Investment Association chief executive Chris Cummings said: “Global uncertainty has led to a doubling-down of investor caution in November. A combination of international trade tensions, ongoing Brexit uncertainty, and the market volatility seen from October onwards, have clearly dented confidence.”

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