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Aiming for positive returns in all markets – the Targeted Absolute Return sector

Funds in the Targeted Absolute Return sector aim to achieve a positive return in all market conditions. While returns aren’t guaranteed, they do tend to be less volatile than traditional equity funds. However, these are specialist funds that use complex techniques and investment instruments, and their makeup and risk level can vary significantly and change over time so it is important to understand them before investing.

Lee Dooley Lee Dooley
02 March 2015

In this article we highlight two funds that our analyst Robert Harley rates highly.

Invesco Perpetual Global Targeted Returns

A fund that caused a stir on launch and is proving popular with our clients is Invesco Perpetual Global Targeted Returns. Set up in 2013 by several members of the successful team that ran the high-profile Standard Life Global Absolute Return Strategies Fund (GARS), it aims to recreate the success of GARS and, not surprisingly, many aspects are similar. For example it aims to target a high gross return above UK base rates and aims to achieve this with less than half the volatility of global equities.

Robert explains: “The diversified nature of the underlying portfolio, which includes long positions (where the managers expect assets to rise in value) and short positions (where the managers believe they will make money from falling prices) across different asset classes, markets and securities, should mean its fortunes are not tied to, or dependent on, any one investment scenario.”

He goes on to say: “This fund now has just over one year’s worth of track record data and results so far have been impressive, with positions in credit, currency, equities and bonds all contributing to total returns. We are confident that the team should be able to replicate the success enjoyed at its previous employer.”

Threadneedle UK Absolute Alpha

This fund is run by experienced managers Mark Westwood and Chris Kinder who are supported by one of the City’s largest dedicated UK equity teams. Although there are no guarantees, it aims to achieve absolute returns over a 12-month period irrespective of market conditions. The fund does this by using a long/short strategy to invest in large and mid-cap equities. The long positions (those expected to rise in value) tend to focus on FTSE 350 companies that the managers expect to deliver positive absolute price returns for investors on a two to three year view. Short positions, which are those where the managers believe they will make money from falling prices, consist of a combination of individual securities and FTSE indices.

Robert says: “Performance to date has been impressive with total returns achieved at relatively low levels of volatility. This fund also benefits from having relatively small assets under management. This means it is more nimble, which offers advantages, particularly in exiting short positions. Threadneedle has indicated that it will close the fund at about £500 million to protect performance.”

 

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The value of investments, and the income derived, can go down as well as up, and you can get back less than you originally invested. Funds may carry different levels of risk depending on the industry sector(s) in which they invest. Targeted Absolute Return funds do not guarantee a positive return and you could get back less than you invested, as with any other investment. Additionally, the underlying assets of these funds generally use complex hedging techniques through the use of derivative products, which can carry additional risks which may not be immediately apparent. This is not advice to invest.