Investors Continue to Seek Shelter in Absolute Return Funds

Investors have bought more multistrategy fundsthan any other asset class this year, reflecting their concerns over volatility and asset prices

Karen Kwok 3 May, 2016 | 12:27PM
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Multi-asset funds are the most popular sector of 2016; topping £1 billion inflows in the first three months of the year, reflecting investors’ anxiety over a low interest rate environment and a volatile stock market.

Multi-strategy funds posted inflows of £832 million in March alone, as investors face a continuing dilemma. Low yields on bonds mean that equities look like the only source of decent returns – but equities look risky thanks to a volatile stock market since the start of the year. Flows in March pushed inflows year to date to £1.3 billion, making it the most popular sector among investors in 2016 so far, according to Morningstar Direct.

Invesco Perpetual Global Targeted Returns gained the largest inflows in the sector of £614 million year to date. It has a balanced asset allocation in between equity and bonds, investing mainly in developed markets and is up 1.5% year to date.

Investors have also kept an eye on another multi-strategy fund, Standard Life Global Absolute Return Strategy, also known as GARS, a Bronze Rated fund that is managed by Guy Stern – the second most popular fund year to date with inflows of £340 million. Morningstar analysts have recently re-instated a Bronze Rating for this fund following a period of no rating while the fund was under review after key individuals left the investment team.

However, given the stability of the investment process through past team member changes, the fund rating moves back to Bronze. The fund has continued to meet its performance objective and Morningstar analysts have confidence in Stern.

The fund has one of the more successful track records within the absolute return peer group. It has returned approximately 6.5% annualised since launch in May 2008 and its charge is below the peer group median at 0.84%.

Aviva Investors Multi-Strategy Targeted Return Fund has also attracted significant inflows since the start of the year with £242 million. The fund is launched in July 2014 leading by Euan Munro, who has previously managed the GARS fund. It is too early for this fund to earn more than a Neutral rating, says Morningstar analyst Randal Goldsmith, however the strong start and firm wide support for the fund’s strategy bodes well. From launch in 2014 to the end of January 2016, the fund has returned an annualised 7.3%, which is on course to meet its target when it reaches three years.  The fund’s ongoing charge of 1.1% is below average within its Alternative Multistrategy Morningstar Category.

Who is the Most Popular Fund House?

Henderson is the most popular fund house so far in 2016 with inflows more than £1 billion. The Henderson UK Absolute Return fund recorded inflows of £336 million, pushing inflow to its Long Short UK equity sector to £619 million year to date. It is a Bronze Rated fund by Morningstar analysts. The fund aims to provide consistently positive returns regardless of market conditions by taking long and short positions in UK equities. It has delivered an annualised 10.3% from the beginning of 2004. Lead manager Ben Wallace is supported by comanager Luke Newman and dedicated analyst Gary Thomson, who are both experienced members of the high-alpha team, according to Goldsmith.

Fundsmith Tops Most Popular Global Funds

Fundsmith Equity fund is the only global equity fund which recorded positive inflows year to date. This fund saw the largest monthly inflows in three years with £328 million in March. The fund is Rated Bronze by Morningstar analysts. This fund remains an attractive choice for investors seeking global equity exposure, according to Morningstar analyst Muna Abu-Habsa. The fund manager Terry Smith is a well-known personality, having headed up a number of FTSE companies, and he is an original thinker, often demonstrating his willingness to bet against the crowd, Abu-Habsa said.  

Whilst concerns have been raised about the valuation of many "defensive" names in Smith’s fund, the manager, who focuses on free cash flow yield, says he still sees significant opportunities in the market. The fund is further ahead of its average global large-cap equity Morningstar Category peer, outperforming the category average by 10% a year over the last three years.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk