Absolute return funds are supposed to deliver positive returns year after year. Another way of putting that is that they offer an implied level of capital protection. "So my number one question would be how much money can you lose in this fund," says Rob Pemberton, investment director at wealth managers HFM Columbus Asset Management.
So here are the absolute return funds that are less likely to lose investors' money:
BlackRock UK Absolute Alpha (P Share class) has delivered more than 29 per cent since launch on 31 March 2006 and made a positive return every year since launch, including 2008 when it made 1.53 per cent - the FTSE All-Share fell nearly 33 per cent. However, it levies a 20 per cent performance fee if it meets targets on top of a 1.75 per cent annual management fee.
Newton Real Return has done well over five years, with a return of more than 50 per cent and positive returns every year, including 4.4 per cent in 2008.
Over one year L&G Diversified Absolute Return has done well with more than 13 per cent, but it was launched just over two years ago so there is not a long performance record. It has also been more volatile than some absolute return funds, according to Darius McDermott, managing director at discount stock brokers Chelsea Financial Services.
Just over a year ago, Jupiter launched its Absolute Return Fund but year to date it has returned 0.28 per cent - less than cash. However, manager Philip Gibbs had an excellent record running an offshore hedge fund for 10 years, so it could be a fund to consider.
Earlier this year Thames River launched a fund that invests in absolute return funds. A fund of funds means you do not have to pick through different strategies, as it is done by an experienced management team who have access to a wider range of absolute return funds than private investors (around 400), and probably pay lower charges for them as they are buying in bulk.
But you do incur double charges - those the fund you buy, and those of the underlying funds it invests in. On top of that, Thames River Absolute Return fund charges a performance fee - 10 per cent if it meets certain targets. Also, it doesn't have much of a performance track record for us to assess.
Finally, there are so many variants in the absolute return sector that many investors in absolute return funds probably don't understand what they have bought. For example, the Standard Life Global Absolute Return Strategies Fund has produced excellent returns since launch in May 2008 but employs a number of trading strategies across a number of asset classes which are not explained clearly in the fund literature. As ever - if you don't understand it, don't buy it.
