Our absolute return fund research was featured in the FT and the Telegraph this weekend.
Both publications quoted our research which found that only 3 of the 51 open funds in the absolute return sector scored at or above our minimum threshold for fund suitability.
This fund research is based on an in-house ‘quant screen’ we have developed which seeks to identify those funds which deliver consistent risk-adjusted returns combined with low costs.
When selecting investment funds, we believe that these are the three key factors (consistency, risk-adjusted returns and cost) that make the difference between a ‘good’ and ‘bad’ fund.
This method of analysing investment funds is of course no guarantee of future performance. It does provide a way for us to identify the most suitable funds before subjecting them to more detailed scrutiny.
Of course fund selection should always be the final step in the decision making process when constructing an investment portfolio.
Fund selection comes a long way down the list after establishing financial objectives, determining tolerance towards investment risk, and strategic and tactical asset allocation decisions.
A robust ongoing review process should also be established before selecting funds.
We think that most absolute return funds are pretty dire and we question their need within a well constructed and regularly reviewed investment portfolio.
If you are an investor who receives advice from an independent financial adviser, we think there are two things you should do tomorrow morning.
Firstly, ask to see a copy of their investment philosophy, investment advice process and fund selection process. They should have documented all three things to ensure the investment advice they provide is considered and properly researched.
Secondly, ask them for their rationale behind recommending absolute return funds. Make sure you understand the reasons and, just as importantly, that they understand the reasons for making these recommendations.
