Absolute return' funds fail to deliver

Finding an investment fund that delivers the perfect mix of low risk and consistently strong returns is no easy task.

In a sense, this is the "Holy Grail" combination for investors and even the professionals struggle to unearth funds that tick both boxes.

So there was little surprise when research by Your Money found none of the 2,000 or so funds available to British investors delivered table-topping performance without a large dose of added risk.

Fund managers have tried to create a middle ground by launching "absolute return" funds. As the name suggests, the aim was to provide a positive return, regardless of what happens to the stock market.

Understandably this "get rich slow" concept proved popular with savers, particularly given the poor returns on savings accounts on the high street and the difficulty in finding safe replacements. Some £2bn has poured into this type of investment in the last 12 months, and figures this week showed that these funds ranked among the most popular investments in Britain in October.

Yet the majority of absolute return funds have failed to meet expectations. Some savers have lost substantial sums; a previous investigation by this newspaper as long ago as 2011 found that more than half of the 64 absolute returns funds failed to turn a profit that year. .......

...... Investment experts say there are better alternatives available to investors. ......

...... Other analysts warned about performance fees on this type of fund. Alan Steel, founder of financial adviser Alan Steel Asset Management, said: "A fund designed to reduce your risk of market loss is clearly better to have before a market crash, not following one, which is why these funds should not be bought by savers.

"Fund management groups have taken advantage of heavily plugging these funds to savers who are seeking a solution to the volatile nature of stock markets."

So what are the alternatives that the experts claim do a better job? The experts said the trick is finding a fund that takes a "buy and hold" strategy - in other words, the fund manager sticks to a selection of long-term winners, rather than tinkering to chase returns. ......

...... Other funds to consider are the Investec Cautious Managed fund, tipped by Mr Steel. The fund invests in a mix of shares and bonds in a conservative fashion. ......

Quote courtesy of The Telegraph
Saturday 23 November 2013