Fidelity raises absolute return concerns

Fidelity International has raised concerns over absolute return funds, warning that investors may be being misled by the term.

The group says investors may believe they are guaranteed positive returns where many of the funds fail to deliver.

The remarks come after Money Marketing, Fund Strategy’s sister publication, yesterday revealed that the FSA was privately advising providers against launching funds that use the absolute return label, as it creates the impression returns are guaranteed.

Richard Skelt, the co-head of the investment strategies group at Fidelity, says: “For investors who translate the term absolute return into ‘guarantee’, the fact that what they have bought into is a fund that does not do what they expected and deliver a positive return will come as a disappointing surprise.” (article continues below)

Skelt says Fidelity has avoided use of the term completely.

“Last year when we added a new category to our select list we avoided using the term absolute return and instead labelled it ‘alternatives’ as we believed that while it is a group of funds that needed to be on the list, the absolute return term implies a promise that clearly not all managers can deliver on.”

Skelt urges potential absolute return investors to choose a fund with low correlation with equity markets and look at the risk management abilities of the manager.

He adds: “They should also look at the consistency and strength of the portfolio construction and investment process.”