Welcome to the new morningstar.co.uk! Learn more about the changes and how our new features help your investing success.

Investors Abandon Absolute Return Funds

Investors continue to ditch underperforming absolute return funds, most of which have not met their own five-year return targets

Annalisa Esposito 22 July, 2019 | 4:27PM

Investor targets

Investors are ditching disappointing absolute return funds that aren’t even meeting their own performance targets, latest figures from trade body the Investment Association reveal.

Investors have pulled £5.4 billion out of the so-called safe haven funds over the past year, even while they search for lower risk options.

While investors poured £1.3 billion into funds overall in May, targeted absolute returns suffered outflows of £505 million in the month – the eleventh consecutive month of outflows for the sector.

Absolute return funds aim to deliver a positive return over a rolling three-year basis, which should make them an ideal choice for cautious investors looking to protect their money. But a sustained period of poor performance has seen many of these funds disappoint.

Laura Suter, personal finance analyst at AJ Bell, says that given the poor performance of many of these funds, it is no surprise that investors have abandoned them.

Some eight out of 10 of the largest funds in the sector have not met their own five-year return targets, and more than half have not beaten their benchmarks.

Absolute return funds

Standard Life’s Global Absolute Return Strategy, rated Neutral by Morningstar analysts, has returned just 5.8% over the past five years. The former behemoth has seen its assets shrink from a hefty £26 billion to £8 billion as investors have lost faith in the fund. Morningstar data shows that investors pulled £292 million out of the fund in June alone.

Other funds in the sector have also seen their assets shrink as frustrated investors have turned elsewhere. The Merian Global Equity Absolute Return fund has suffered outflows of £4 billion over the past 12 months, BNY Mellon Real Return £2.9 billion and GAM MultiBond Absolute Return Bond Plus fund £1.4 billion.

Suter says: “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.”

While absolute return funds remain firmly out of favour, global funds attracted the most money in May, according to the IA’s figures, with inflows of £562 million in the month. Among IA sectors, Strategic Bond, Mixed Investment 40-85% and UK Equity Income funds were also among the most popular over the period.

Fixed income was the most popular asset in the month, attracting £771 million of investors’ cash. Protracted uncertainty over Brexit and the ongoing trade war between the US and China has seen nervous investors look for lower-risk and income-focused options. Money market funds have also seen as influx of cash, with £306 million flowing into these funds in May. 

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.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BNY Mellon Glbl Rl Ret (EUR) W Acc1.28 EUR-0.26
SLI Global Abs Ret Strats D Acc EUR12.41 EUR-0.18

About Author

Annalisa Esposito  is a data journalist for Morningstar.co.uk

Audience Confirmation


By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites