“Even though the fund has performed well recently [at least, that’s the case if investors opted for the euro-hedged share class of this fund, which has a 98% exposure to sterling], we are still worried about the future performance of fixed income,” she says. Central banker speak and the ensuing market turmoil last week suggest she may have a point.
As a consequence of the bleak prospects for bonds, Abante has gradually increased its exposure to absolute return funds in recent years. While Campello values flexibility in bond and equity managers, that’s not so much the case for absolute return managers. They have to stick to a pre-defined strategy, and if they don’t they will feel the consequences.
“We recently sold a multi-strategy fund because they had tweaked their strategy, allowing for more flexibility and looser risk management to achieve better returns. We don’t like managers who change the rules in the middle of the game,” she says.
An increase in risk budget heightens the risk of rising volatility. And that’s what Campello wants to avoid at all costs, as some of Abante’s clients are not used to being exposed to risk. “Some clients are still used to 5% returns from cash accounts.”
But 5% p/a is not the sort of return that absolute return funds have been delivering, especially over the past two years. Is that actually a problem for Campello?
“We understand these funds are not magic,” she says. “But all these strategies have a low correlation to the market, and low volatility, and that’s what we are after.”
And Campello is confident better times will arrive for absolute return funds (in the graph above you can see a selection of absolute return funds owned by Abante). “When volatility and interest rates finally start going up, there will be more opportunities to make money.”