Mitigate downside with Janus Henderson UK Absolute Return

Targeted Absolute Return sector funds aim to do this, with most targeting annual positive returns. The problem is, many funds in this sector fail to deliver such returns so you have to pick the one you invest in very carefully. 

But one absolute return fund that has bucked the trend and consistently performed in line with expectations is Janus Henderson UK Absolute Return (GB00B5KKCX12). The fund is managed by Ben Wallace and Luke Newman, who take a rigorous approach to risk management and aim to provide a return of more than zero over any 12-month period. They also try to outperform the UK base interest rate, after the deduction of charges, over any three-year period.

The fund has succeeded in providing positive returns in all but one full calendar year since its launch in 2009. And its fall of 2.71 per cent in 2018 was considerably less than the FTSE All-Share index’s fall of -9.47 per cent. Over the year to 15 May, meanwhile, the fund has delivered a positive return of 3.71 per cent, compared with a fall of 17.09 per cent for the FTSE All Share and the Investment Association (IA) Targeted Absolute Return sector average return of -1.41 per cent.

“This £1.5bn fund has held up well in recent market volatility and protected against losses," adds Laura Suter, personal finance analyst at broker AJ Bell. "Since the start of the year it has risen by [about] 1 per cent when markets have fallen by much more."  

The fund invests in shares and its managers also make extensive use of derivatives to mitigate downside when markets fall. Mr Wallace and Mr Newman buy companies that they think have attractive long-term growth potential and short sell those they expect to struggle. Short selling involves borrowing stocks in order to sell them and buy them back, ideally at a lower price, before returning them to their original owner. 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. 

Typically, at least 60 per cent of the fund’s exposure is to UK companies and up to 40 per cent is to overseas companies. Mr Wallace and Mr Newman take long or short positions in companies of any size and in any sector, and the fund is not constrained by a benchmark. 

Janus Henderson UK Absolute Return can levy a performance fee of 20 per cent of any returns it makes over the Bank of England base rate. As the base rate is currently only 0.1 per cent, this could make the fund’s ongoing charge of 1.05 per cent higher. For example, in the fund's financial year to 31 May 2018 the ongoing charge of 1.05 per cent plus the performance fee of 0.33 per cent added up to 1.38 per cent for this share class.

However, the performance fee is only triggered if it meets its objectives and it was not charged over its last financial year to 31 May 2019. So if you are looking to mitigate the downside of your investment returns, Janus Henderson UK Absolute Return's strong record of making positive returns means that it still looks like a reliable way to do this. Buy. MM