On the back foot
However, despite their best efforts, Peter Lowman, CIO at Investment Quorum, believes even the best absolute return fund managers are liable to be wrong footed.
“When running global absolute return with long/short, global macro and other strategies, your biggest enemy is not the market but the central banks,” he says. “They are catching managers out. One month you have the Fed talking about the recovery, and the expectation is for a rate hike. But then an outside force comes along and Yellen and co have to think again, such as if the wheels fall off in Europe after Brexit or China blows up.
“So they keep kicking the can down the road, and delaying. We have had one rate hike in a decade where at the beginning of the year they were talking about having four this year. I can’t even see us having one.”
Still, Lowman has been introducing “ballast” to portfolios with funds that short both equities and currencies, including the aforementioned Aviva Aims and JP Morgan Global Macro Opportunities. A further choice is Jupiter Absolute Return Fund, run by ex-Swip manager James Clunie.
Lowman says: “It is exactly the same as a long-only market in that you have to find those managers that are really good and can deliver in a falling as well as rising market.
“After a few years we have sorted out the wheat from the chaff. There are some managers that can protect you on the downside and a lot of them are running new funds – but they are older established managers or are using old investment processes that have been used elsewhere.”
