Absolute Return Sector – Which funds should you choose?

By ADRIAN LOWCOCK 11/12/2009

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2009 has been characterised by the launch of numerous absolute return funds and as the year the draws to a close we see another new fund joining this sector, the Jupiter Absolute Return fund.

When looking at new fund launches, our Research Team carry out a thorough analysis of the manager. Below we take a look at the funds we rate in this asset class and provide you with some guidance on how to decide which fund is most suitable for a range of different investment objectives:

This fund aims to deliver returns in all market conditions by investing in global equities, bonds, cash and derivatives. It will be relying on Philip Gibbs‘ expertise and therefore we expect the fund to have a bias to financials. Gross exposure to the market can be 150% which is lower than some of its peers. The fund will have a concentrated portfolio and could potentially be very volatile.

Given the likely financials bias we do not recommend this as a core holding. However, the manager has an excellent track record and this fund may be suitable for more adventurous investors who already have exposure to absolute return funds. We have rated the Jupiter Absolute Return fund 4 stars.

This fund aims to deliver returns in all market conditions by investing in companies which are based or conduct most of their business in the UK. It can invest in mid or large cap sized companies, but there is a bias towards FTSE 250 companies. The mandate allows for gross exposure to be as high as 300% of the market, although this has never been fully used.

Ben Wallace has demonstrated he can add value through his tactical strategy and we believe this fund provides an attractive option for investors seeking core hedge exposure. The fund’s ability to buy and sell stocks using derivative instruments may increase potential risk. This fund is suitable for a well diversified portfolio and more adventurous investors. We have rated the Gartmore UK Absolute Return fund 5 stars.

This fund aims to produce 8-9% return in all market conditions by investing in UK equities and using derivatives to add value by selling (or shorting) certain companies. Its focus will be on mid and large cap sized companies. This fund has demonstrated little volatility since launch and has a low correlation to the FTSE All Share Index.

Mark Lyttleton avoided the worst of 2008 by giving investors protection as the markets fell. However, performance has lagged in 2009, as the strength of the rally caught many by surprise. We believe this fund would be suitable for the more cautious investors. We have rated the Blackrock UK Absolute Alpha 4 stars.

The fund aims to have a maximum of two thirds volatility of the FTSE All Share Index, whilst producing an absolute positive return in all conditions of 8-10%. The key strategy is through stockpicking, identifying under- and over- valued stocks with each stock having a price target.

This fund was launched in August with a cap on the number of units available. It fulfilled this in ten days and is no longer open to new money. As the Cazenove Absolute UK Dynamic is closed to new investments, we have left our rating at 2 stars and existing investors should continue to hold this fund.

The objective of the fund is to achieve long term growth by investing globally through exposure to equities, bonds, cash and derivatives. The fund’s manager has no constraints on investment choice and can also make currency investments.

William Littlewood has an impressive track record in managing UK equity income funds. However, his hedge fund record is not as strong. In addition, Artemis has never before given such a free reign to one individual and key person risk remains a concern. We have rated the Artemis Strategic Assets 3 stars.

The fund seeks to generate a positive return across all market conditions by investing in a range of strategies within a risk controlled framework. It will seek to exploit market inefficiencies over a three to five year period. Derivatives are often used to protect against falls in value, whilst leaving the growth potential unrestricted.

This fund is positioned for a more muted recovery and is able to react quickly when required. It is a core absolute return offering that we believe is suitable for most investors who are looking for exposure to the sector. We rate Standard Life Global Absolute Return Strategies 3 stars.

If there is anything you wish to discuss regarding this article or would like guidance on which fund might be suitable for you please call one of our Advisers on 020 7189 9999.

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Source: Financial Express