Natixis H2O MultiReturns, which aims to significantly outperform the one-month London interbank offered rate over three years, was the only multi-asset absolute return product that made a positive return in 2018. Admittedly, this was no easy task amid widespread market falls.
Many of the offerings have also fared better over longer time periods: as of mid-January, around 20 of the funds with a three-year track record had made gains over this period. Several of these, including 7IM Real Return, Barings Multi Asset and L&G Multi-Asset Target Return, notched up double-digit growth.
Popularity contest
Has this been enough to persuade investors that such funds are worth backing? A look at fund flow data suggests not. In November 2018, the IA’s Targeted Absolute Return sector fared worst of all the sectors, with UK retail investors taking out £756m on a net basis.
The picture looks bleak over the year to the end of November too, with the sector being hit by net outflows of more than £1bn. As we reported in last month’s issue of Money Management, much of this will be down to many calling time on the group’s biggest constituent: investors took nearly £6bn out of SLI Gars last year on a net basis. As Chart 1 shows, another multi-asset absolute return name, Newton Real Return, registered net outflows of more than £2bn, according to Morningstar.
Others have continued to gather assets at pace, as both professional and direct-to-consumer investors look for funds less correlated with rocky equity markets. But intermediaries still have their work cut out for them when it comes to picking the most appropriate funds for clients.
The IA sector that houses many of these products remains highly disparate: it contains multi-asset names looking to generate consistent positive returns, but also fixed income offerings with a similar remit and several long/short equity products. As a result, the approaches on offer vary wildly: some funds in the sector look to grind out steady, if modest, returns, while others offer something more high octane.
One sector member, City Financial Absolute Equity, provides a good example of the more adventurous approach. This long/short fund is up nearly 11 per cent over five years, but has made losses of around 20 per cent over both a one and three-year time horizon. This comes despite it having gained nearly 10 per cent during the volatile month of October 2018.
So the peer group is a good reminder that advisers – or those to whom they outsource investment decisions – must carry out substantial due diligence on the products they back.
