Here at Informed Choice, we are not a big fan of absolute return funds.
These funds, which follow a variety of strategies designed to deliver absolute (rather than relative) returns for investors, have largely failed in their goal in recent years.
This is despite volatile market conditions being almost perfect for a fund which can profit from either rising or falling markets.
Finding more than a handful of successful absolute return funds from the sector has proven to be a challenge.
The Investment Management Association (IMA) has completed a review of this sector, and has decided to rename it the Targeted Absolute Return sector.
This is a step in the right direction, recognising that investors in these funds are in no way guaranteed to achieve the aims of a fund. Adding the word ‘targeted’ to the sector title confirms that these funds have a goal rather than a guarantee to deliver positive returns in any market conditions.
Funds in the sector will also have to clearly state the timeframe over which they aim to meet their stated objective. This timeframe must be no longer than three years.
What we would like to see is a sub-division of the sector, to help investors (and their advisers) better understand the multitude of strategies being deployed by managers of targeted absolute return funds.
According to Morningstar, there could be as many as 18 different sub-strategies being followed in the Targeted Absolute Return sector.
Sub-division was one of the proposals originally under consideration by the IMA. Their introduction of a filtering tool to help investors find and compare funds with similar strategies is a reasonable alternative.
We still believe investors need to treat targeted absolute return funds with real caution.
Better results along with more control over risk and lower overall charges can usually be achieved by constructing and regularly reviewing a portfolio of single asset class funds.
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