“Funds in the sectors which do not appear to comply with the ‘spirit’ of a definition will be removed from the sector,” says an IMA report from the end of November. “Funds will be issued with a warning before they are removed. The ‘spirit’ may be considered as being whether a fund’s investments or strategy tends towards the achievement of the overall sector scheme objective of allowing like-for-like comparisons to be made between funds.”
If only fund managers in the Absolute Return sector could do this and at least pretend to comply with the ‘spirit’ of providing investors with a positive return in any market conditions on a 12-month basis.
The bad…
The worst culprit is the GLG EM Diversified Alternative which has returned -16.1% over the past year, with a similar return over the past six months. According to its own fund fact sheet, it has not given a positive return since launch in September 2009.
Given it has consistently failed its investment mandate and its investors , there is a very good argument for it being closed down and its managers, Karim Abdel-Motaal and Bart Turtelboom, allowed to pursue other interests.
They would not be alone.
The Polar Capital UK Absolute Return has lost 13.3% of investors’ money in the past year and is down by nearly 3% over three years; Gavin Launder’s L&G European Absolute Return Fund has returned -10.6%.
The good…
At the other end of the scale there are funds in the IMA’s Absolute Return sector that actually do what they say on the tin.
Paul Marriage’s £209m Cazenove Absolute UK Dynamic Fund has returned 11.4% in the past year; the Eclectica Absolute Macro has given investors 10.7%; while a third to give double figure returns is the quant-run Old Mutual Global Equity Absolute Return, with 10.5%.
If the FSA was allowed to apply the ‘spirit’ of what an absolute return fund should do, there would – and should – be several fund managers, at best, looking for other strategies to run. The defence of investment conditions being tough and markets being volatile does not wash with absolute return funds.
“Managers should note that the user group for sectors should be assumed to be consumers and their advisers,” the same IMA report reads.
With this in mind, maybe the ‘spirit’ should be used when it comes to naming absolute return funds.
The ugly…
Discretionary investment manager Whitefoord today announced it is to change the name of its Absolute Return Fund to the CF Cautela Fund.
The fund’s manager, Nolan Stanton, says the new name “more accurately reflects the fund’s investment style” but how many people know that cautela is Latin for caution and security?
“The original name for the fund was chosen to reflect its objective of generating a positive return over the medium to longer term, regardless of market conditions. However, it has on occasion been confused with funds in the Absolute Return sector which are less straightforward and transparent and have not always met their investment objectives.
“The change of name to the CF Cautela Fund should help to avoid this confusion.”
Somehow I doubt it…
