Group savages sector performance

Thames River Capital’s multi-manager team says the Investment Management Association (IMA) Absolute Return sector is the only one where no funds have met its consistency criteria over the past three years.

The group’s consistency ratio measures the performance of funds delivering above median returns over three years. Over the last quarter 13.2% of all funds have achieved this goal.

Rob Burdett, a joint head of multi-manager at the group, says performance in the Absolute Return sector has also been varied during the past six months, ranging from a gain of 13% to a decline of 17.5%. (article continues below)

The sector is down 0.2% on average for the six months to July 27, says Trustnet, compared with a rise of 2.48% in the FTSE All-Share.

Burdett says that market volatility in May upset some of the risk management processes used in the funds: “Funds that have value-at-risk controls on their funds can be forced to sell out of their positions, which can mean that they are not exposed to any subsequent bounce. In normal conditions this type of stop-loss can work well, but it hurt many absolute return funds.”

The performance will fuel criticism of the sector that it has attracted a lot of money from investors who assume “absolute” return means that funds are guaranteed to rise.

Richard Pursglove, the head of UK retail at Gartmore, says: “The expectation shouldn’t be that these funds can’t go down. They do experience periods of negative performance. Investors should be looking for low volatility and low correlation.”

He says Gartmore’s absolute return funds aim to deliver their absolute return target on a rolling three year basis.