Investors flee underperforming Absolute Return funds

Laura Suter
22 July 2019

•        80% of the funds with the highest outflows failed to meet their five-year target return… 
•        …and more than half haven’t beaten inflation
•        Investors pulled £5.4bn from Absolute Return funds over 11 months of outflows

Laura Suter, personal finance analyst at investment platform AJ Bell, comments:

“Investors have been ditching Absolute Return funds in their droves over the past year, with the past 11 months seeing consistent outflows, as investors pulled £5.4bn from the funds*. It marks a fall from grace for the sector, which was the best-selling asset class in both 2015 and 2016.

“Lacklustre performance has marred the sector recently and the funds seeing the largest outflows have failed to meet their own performance benchmarks. We’ve also had a period where inflation has spiked and investors have seen many of these so-called safe haven funds fail to even beat inflation over the past five years. 

“Of the 10 funds that have seen the largest outflows over the past year, eight have failed to meet their own performance targets, while one has no clear benchmark and one doesn’t have five-year performance data. Of the nine that do have a five-year track record, five have failed to hand investors a return above inflation over that period.

“Standard Life Investments Global Absolute Return Strategy, seen as the flagship fund for the sector, has seen the largest outflows with investors pulling almost £10bn over the past year and more than £18.5bn in the past three years. The fund has seen a period of underperformance, falling far short of its target of cash returns plus 5% a year, over a rolling three year period. Over the past five years it has returned just 5.81%, less than inflation during that time. However, the fund has rebounded in the past year, returning 4.9%, ahead of average inflation of 2% and the 1% average return of the sector.

“The Merian Global Equity Absolute Return fund has clocked up £4bn of outflows over the past year, the bulk of which has been over the past six months when investors withdrew £2.6bn of money. The fund doesn’t appear to have a clear benchmark**, and over the past year has handed investors an 8% loss. However, over the longer-term the fund has delivered 10.5% total return to investors, ahead of inflation and the sector average.

“The worst performer on the list is GAM MultiBond Absolute Return Bond, which has delivered a loss of 1.1% over the past five years, not even meeting its own low benchmark of beating the three-month Libor rate, which was 2.9% over five years. The fund is one of the ones suspended and liquidated by GAM, following its suspension of fund manager Paul Heywood. 

“While there have been some investors willing to put money into Absolute Return funds, the level of inflows have been tiny in comparison to the outflows. The collective inflows of the top 20 funds over the past year doesn’t even amount to half the outflows seen on the SLI GARS strategy alone.” 

*Based on Investment Association figures
**The factsheet says the fund aims to “deliver absolute returns over rolling 12 month periods that have a low correlation with equity and bond markets”.

Name

Outflows over 1 year (£)

1yr returns (%)

5yr return (%)

Beaten performance target?

Standard Life Investments Global Absolute Return Strategy

  -£9.7bn

4.88%

5.81%

No

Merian Global Equity Absolute Return

  -£4.0bn

-7.86%

10.54%

NA*

BNY Mellon Real Return

  -£2.9bn

10.06%

19.29%

No

GAM MultiBond Absolute Return Bond Plus

  -£1.4bn

1.17%

-0.42%

No

Kames Absolute Return Bond

  -£1.4bn

0.68%

4.75%

No

BNY Mellon Absolute Return Equity

  -£1.2bn

-4.68%

2.42%

No

GAM MultiBond Absolute Return Bond

  -£1.0bn

0.82%

-1.11%

No

Invesco Global Targeted Returns

  -£925m

-0.85%

10.48%

No

Aviva Investors Multi-Strategy Targeted Return

  -£719m

0.74%

8.78%

No

Aviva Investors Multi-Strategy Targeted Income

  -£679m

4.90%

NA

NA

Sector average

-

0.96%

9.48%

-

UK inflation

-

1.98%

7.68%

-

Source: Morningstar/FE/AJ Bell. Data accurate to 30/06/19. Morningstar flow figures are an estimate. Inflation measure based on CPI.*Fund has no clear benchmark

Laura Suter
Personal Finance Analyst
Laura Suter is personal finance analyst at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.
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