The demise of the once-behemoth Abrdn Global Absolute Return Strategies (Gars) Fund should not deter investors from considering absolute return strategies for their portfolios, according to several investment professionals, who argue the right products can offer vital diversification amid the recent change in the market regime.
That being said, most believe the IA Targeted Absolute Return (TAR) sector is a ‘shadow of its former self’ and the number of attractive opportunities in the 92-strong sector are dwindling.
Sector history
The previously named IMA Absolute Return sector was created by the Investment Management Association – now the Investment Association (IA) – in April 2008, comprising 48 funds with a combined £13.6bn under management. Its objective was to achieve a positive total return in all market conditions, over rolling periods of up to three years.
See also: Absolute return funds are having a resurgence
The sector attracted swathes of investor money, which also led to a huge increase in the number of absolute return funds – all with different offerings, benchmarks and performance indicators.
In 2012, a consultation was launched into whether the heterogenous sector should be sub-divided by hedge fund style, or to be allowed to keep growing but under a new name. The latter option was chosen, with the IA adding the word ‘targeted’ in 2013 to suggest that positive returns were not a guarantee.
By this point, the sector had grown to £41.4bn in assets under management (AUM), according to Morningstar data, with an organic growth rate of 27.3% over 12 months alone.
See also: Re-examining relative versus absolute returns
As the average performance in the sector dwindled, so did its popularity. Its growth slowed year on year until 2018, when its AUM eventually began shrinking. This has happened every year up until the end of July 2023 (when Portfolio Adviser requested the data), with the now £26.9bn sector having reduced in size by 6.4% over just seven months. At its peak in 2017, the TAR sector held £74.8bn in AUM.
To read more, visit the September edition of Portfolio Adviser Magazine
