According to the firm’s Absolute Return Funds Dashboard for December, more than 70% of absolute return strategies made gains in the 12 months to November. While this was down on 2012, it was significantly ahead of 2011, when the funds fell by an average of more than 3%.
Fitch notes that drawdown during the sell-off in May and June this year was more severe than that encountered in 2011, but adds that funds were better able to capture rebounds – suggesting that portfolios had not de-risked in the “abrupt and untimely manner” seen on previous occasions.
“Anchoring allocations and avoiding excessive churning can prove beneficial in periods of sell-offs, quick rebounds and low liquidity,” the report continues. “This approach suggests a higher acceptance of temporary drawdown from investors to protect alpha in the longer term.”
Average performance was additionally boosted by short-volatility and relative value strategies – both of which benefited from a normalisation of market conditions during the past three years.
Relative value ‘central’
Looking ahead, the report concludes that relative value should remain central, if volatility continues to be low and decreasing. However, funds able to deploy both relative value and directional strategies – in low and high volatility periods, respectively – “should provide more stable returns”.
According to Lipper, assets in absolute return funds have almost doubled since the end of 2010, and are close to €200bn. As Expert Investor Europe revealed in September, appetite for such strategies has risen strongly among German fund selectors in the past 12 months.