The sector posted meagre returns of 0.2% in Q4 against an even less impressive -1.2% for the year, which took it to 31st out of 36 IMA sectors in terms of performance Thames River’s latest FundWatch survey revealed.
Gary Potter, co-head of the Thames River Multi-Capital team, said: "In a quarter that was generally not brilliant for returns and a year that was certainly not positive for equities, these funds ought to have done considerably better – you would expect them to underperform in strongly rising markets, but the idea is that they hold up better when equities are struggling. With returns on cash still negligible it is disappointing these funds have not managed to make any ground."
But the main difficulty Potter sees with the Absolute Return Sector is the huge variety of strategy, geography, positioning and investable universe, which makes comparison tough.
"The survey highlights a disparity in returns within the same geographical regions and asset classes. The funds in the IMA Absolute Return sector are managed very differently and, despite some poor performance figures, our view is that none of these are inherently incompetently run."
The IMA is currently conducting a review of the Absolute Return Sector to decide whether it should be re-defined, split up or scrapped altogether.
Opinions between IMA members (the fund houses) are said to differ significantly, with Fidelity and L&G among those calling for the sector to be abolished, while BlackRock has signalled it thinks the sector should be left alone.
Potter concluded: "2011 was after all an extraordinary and highly volatile year for the markets; a difficult backdrop for even the most experienced of fund managers. Nevertheless, after losing money in Q3 (-2.4%) and for 2011 as a whole, we would like to see returns above cash at least from these funds to regenerate interest in what should be a very appealing sector in such volatile times."