I’ve been writing about the funds industry for some years now, long enough to know that innovation and proliferation are two very different things.
For every fresh success story (in sales terms at least), such as Standard Life GARS or Newton Real Return, there’s countless other failures. It wasn’t so long ago that I was being invited to cover the unveiling of 130/30 funds. Remember those?
Personnel issues
A real turning point in the growth in popularity of absolute return for retail investors some years back was the rapid rise of BlackRock UK Absolute Alpha, though as Esther Armstrong pointed out last week poor performance and personnel issues have undermined its momentum.true
The retirement of Philip Gibbs at Jupiter and the departure of Euan Munro from Standard Life Investments have also had an impact, though to be fair the Targeted Absolute Return sector still generates sold inflows (£216m in June).
Over the past 12 months, the sector has posted an aggregate return of just 6% though that’s fine if you take into account the rationale of the funds in the first place as defensive play during volatile times.
Perhaps a bigger issue is an apparent escalation in the complexity of retail funds at a time when the FCA is placing greater scrutiny of product suitability.
In its Annual Management Survey, released last week, the IMA stressed that active management is “increasing characterised by alternative asset classes, multi-asset offerings and solutions or outcome-oriented strategies, as well as stocks and securities selection more traditionally associated with alpha.”
Getting the right balance
However, the body cautions there should be a balance, with some products needing a certain level of complexity to deliver the right outcomes. After all, if long/short funds couldn’t use derivatives, how would we expect them to beat a market downturn?
According to FE Analytics, Standard Life GARS still dominates inflows into the sector over the past six months, though it will be interesting to see if this is still the case in a further six months time now that Munro has gone.
Interestingly, credit funds such as Threadneedle Credit Opportunities, Royal London Duration Hedged Credit and BlackRock European Absolute Return Bond are among those which have gathered strong asset flows, proving once and for all that long/short equity is not the only game in town.
It’s easy to forget absolute return is still a relatively young concept for UK retail investors, while classification of the products is an ongoing process with the Targeted Absolute Return sector having only been in existence for a few months.
There’s still plenty of scope for evolution, and as the older names move on they’ll be new managers coming into the fold with bolder and smarter strategies. Reasons to be optimistic, I think.
