ANNOUNCEMENT: On 29th February 2024, Expert Investor becomes PA Europe. Learn more.

Posted inAbsolute Return

Popularity of absolute return strategies could signal further volatility


According to data from Expert Investor’s research team, in Q4 2017, 39% of fund selectors across Europe wanted to buy absolute return strategy funds over the 12 months to 31 December 2019. Another 30% wanted to hold, 25% did not use the strategy, and 6% wanted to cut their holdings over the same period.

When the data is compared to Q3 2017, absolute return strategies have gained in popularity as they came second across all the asset classes with 34% wanting to increase their holdings for the 12 months to end of September 2018. However, the push into first place in Q4 was likely due to selectors turning their backs on European equities.

While the average sentiment was the highest for this asset class, Dutch fund selectors did not feel the same way as their peers with only 7% wanting to increase their holdings, 27% to hold, 53% did not use the asset class, and 13% to decrease over the 12 months to January 2019.

On the other side of the spectrum, French selector buying sentiment for the asset class was considerably above the European average with 68% intending on increasing their holdings. Another 18% said they would hold, 14% did not use absolute return products, and no selectors said they would decrease.

The demand from the French and from selectors across Europe could be part of the reason that some fund managers are planning to launch absolute return funds.

Expert Investor’s sister publication, Portfolio Adviser recently reported that Liontrust Asset Management had plans to launch an absolute return strategy fund to help investors preserve capital during times of volatility, such as the recent global selloff.

If global markets continue to be volatile over this year, Dutch investors would miss out on the stable positive returns offered by these strategies.

Net flows

When looking at net flows in 2017, a dip in September could have been due to developed market equities performing strongly and thus less need for stable returns.

Overall, during 2017 absolute return strategies saw €54bn of net flows, according to Morningstar data.

However, this was at a time when Standard Life Investment’s flagship Global Absolute Return Strategies (Gars) fund, that had been UK’s largest fund, experienced huge losses last year.

Its Luxembourg domiciled version lost €6.4bn in net assets to €23bn in 2017. While the fund is still sizable, at its largest it had €36bn in net assets in 2015.

The fund is currently returning -2.32% over the three years to 31 January 2018, according to FE Analytics. Despite all the outflows and losses the fund has experienced over the last year, the fund has never performed in the bottom quartile against its peers.

Jassmyn Goh

Jassmyn reported from Sydney to New York to Jakarta before joining Expert Investor. She was most recently Features Editor at Money Management and Super Review in Sydney.

Part of the Mark Allen Group.