Thames River multi-managers Gary Potter and Rob Burdett note the Absolute Return (AR) and Specialist sectors saw the highest number of launches in the first three months of the year, with four added to each.
In examining how these first quarter launches fared in the second, Potter and Burdett say the best AR newcomer was BNY Mellon Absolute Return Equity, which gained 0.71% over the three months to 30 June.
Poor performers
The three underperformers over that short timeframe were St James’s Place UK Absolute, IFSL Blacksquare Diversified Absolute Return and Ignis Absolute Return Government Bond fund, all of which lost money.
In general, Potter says the industry is getting “punch drunk” on absolute return mandates and he feels they have the potential to be a big disappointment for investors. He expects many groups are launching into this area solely because they believe it is what IFAs want rather than having conviction this is where returns will come from going forward.
While a single quarter’s results are not indicative of how funds will perform from here on in, Potter notes it can show that many launches are mistimed and are offered solely because of an existing fad or fashion.
Consistency
Across all new, first-quarter launches UBS Emerging Markets Income ranked the highest in its peer group while JPM Global Mining did the worst, falling 5.12% in its first full-quarter performance.
Each quarter Fund Watch looks at the level of consistency among funds with three-year track records. The Thames River consistency ratio for top-quartile returns over three years to 30 June, 2011, rose to 2.68% from 1.3% over the first quarter. Although this is an improvement, Burdett and Potter point out it remains at the lower end of the long-run average of between 2% and 5%.
Of the 1,268 funds with three-year track records examined, just 34 have been top quartile in each of the past three 12-month periods.
There were 15 consistent top-performers out of the 309 All Companies funds, the majority of which had a bias to the mid-cap end of the market, Potter adds. Six out of 107 peers in the Europe ex UK sector were consistently top quartile, five were top in the Global sector, one in emerging, one in UK Smaller Companies, two in the Asia peer group and three in Equity Income.
