Get downside protection with Janus Henderson Absolute Return

Such situations are a good reminder as to why all investors should have an element of downside protection in their portfolios. One way to get this is to invest in a Targeted Absolute Return fund that aims to deliver positive returns in all market conditions, with low volatility. But there is no guarantee that these funds will succeed in doing this and a good number have failed to deliver what they set out to do.

However, one fund that has been largely successful in meeting its objectives is Janus Henderson UK Absolute Return (GB00B5KKCX12). The fund is managed by Ben Wallace and Luke Newman, who aim to provide a return of more than zero, typically over a 12-month period. The fund typically invests at least 60 per cent of its assets in shares or derivatives of UK companies, and up to 40 per cent can be invested in shares and derivatives of companies outside the UK. 

The fund's managers take long positions – invest – in companies where they think there are long-term drivers that will result in the share price rising. When a company's share price seems high and they think it is due to fall, they short it (take bets on the share price falling) or sell it with a view to buying it back when the share price is lower. The number of positions the fund can hold is flexible to allow the managers to take advantage of a range of opportunities and try to meet its objectives in all market conditions.

This strategy has worked very well for the fund, which has made positive returns in nearly every calendar year since its launch in 2009.

However, in 2018, for the first time, it made a negative return of -2.71 per cent.

Another downside to this fund is its performance fee of 20 per cent of any returns it makes over the Bank of England base rate, which is currently 0.75 per cent. This can take its basic ongoing charge a good deal higher if it meets its objectives. For example, in the fund's financial year to 31 May 2018 the performance fee amounted to 0.33 per cent for this share class so when added to its ongoing charge for that year of 1.05 per cent, the fees came to 1.38 per cent.

Although absolute return funds can fall less in falling markets, they typically lag strongly rising markets. And these types of funds don't just rely on their managers' ability to pick shares, but also to short stocks and use derivatives at the right time.

However, although the fund fell 2.71 per cent in calendar year 2018 this was much less than the FTSE All-Share index's fall of 9.47 per cent. Darius McDermott, managing director of Chelsea Financial Services, adds: “Pretty much every single asset class made a negative return last year – it was tough." 

The fund's performance fee is only triggered if it meets its objectives, so there may not be a performance fee for its financial year to 31 May 2019. 

The fund's managers have an average of more than 20 years of investment experience, including 11 years in UK absolute return investing. And so far they have demonstrated that they can largely make the right calls on when to invest in or short stocks.

So, if you need to add some downside protection into your portfolio, Janus Henderson UK Absolute Return still looks like a good way to achieve it. Buy. ZB.