He urges his fellow managers to “do better” in terms of the outcomes they deliver from the strategies they offer to investors.
“Absolute return funds are still too focussed on one or two asset classes,” says the man who runs the BlackRock Absolute Return Bond Fund, launched in October last year. “What has changed to reflect the volatility, the hardships of the past three years? Everyone seems to want more alpha, to put trades on to take advantage of volatility, but are we equipped for volatility when it does come back?
“We can do better.”
Winship – who invests across the fixed income asset classes and has the ability to go short as well as long – argues that volatility will reappear, as will inflation; the unanswered question is ‘When?’.
His worst-case scenario is that Europe heads towards a Japan scenario which, if we get there, will be tough to get out of.
“We won’t get there,” he says, “But if we do we will be there for a few years; and if things do get tough then it will be tough to sell out of some assets.”
Hence he puts the case for a multi-asset, multi-strategy approach to the design of funds aiming to give absolute return investors greater protection from external market and economic downturns, something that has been lacking from many of the funds over the past few years.
He is more positive about the rest of 2012 from here on in, certainly compared to the second half of last year, as the central banks are better placed now than they were a year ago when a good start to 2011 was not capitalised on.
“The Fed and the Bank of England made a hash of it in 2011 and the collapse in the second half showed this. But in 2012, the US has already said its rates will stay low into 2014; the UK has brought in QE; Japan has cut rates; and in Europe, Mario Draghi [President of the European Central Bank] has cut rates and introduced LTRO.”
It is these uncertainties that Winship suggests his and other absolute return funds can help provide a solution for.
On their own they are not the answer, he asserts, but they should be part of a portfolio just in case investors get closer to his worst-case scenario than they would otherwise like to.
