Absolute Returns Funds

moneyfoolish

I've previously asked questions re alternatives to Cash ISAs and received some helpful suggestions together with lots of other information from some of the very financially astute posters on here. Normally, I would not be venturing any further into the equity arena other than my small holding with Nutmeg but I've decided to transfer a portion of my maturing Cash ISAs to an S&S ISA. I have made the decision to move it into one or more Absolute Return Funds as I think this will limit the downside risk (please tell me if I'm wrong!). Do any of the experts have any recommendations for this type of fund? Would something like the Standard Life Investments Global Absolute Strategies be a reasonable choice? Assuming this was a one-off purchase to which there would be no additions, which would be the cheapest platform for the purchase?

talexuser

I had the Standard Life for several years and swapped out because it just underperformed so much relatively during growth periods, and I could not see that much protection during downturns (I still see it occasionally in a few intermediaries recommended lists). Personally I think the absolute sector is oversold as a protection from bad times. If you are really worried about losing money the stock market is not the place for you. If you are investing money you won't need in a hurry and can afford to leave it for a long period, preferably reinvesting dividends, then ride the waves and troughs in good reputation funds... all imho.

ChumpusRex

Investing in absolute return funds was probably the worst investment decision I ever made.

They lost money in the down-turn, they lost-money in the up-turn. They made no money and paid no dividends in the later period of steady recovery. Enormous management fees drained what little returns were there and made losses worse.

Over a 6 year period, my absolute fund investments had returned about 2%; even cash would have been better. Over the same 6 year period, my regular funds had returned over 100%.

Yes. I chose poorly, but the thing about absolute return funds is that they are complex, opaque and it isn't clear why one is any better than another. So perhaps, it would be more accurate to say I was unlucky.

bowlhead99

GARS has a great track record of low volatility growth BUT it is clearly not going to do as well as other strategies in the boom times. They have a lot in relative return strategies which are not so much dependent on movement in overall market as on their managers selecting the best thing to be invested in. If you think equity markets could fall and bond markets could fall, what else is there... pickings get slimmer.

But their overall fund is a complex beast and there is quite a sensible argument to say don't invest in what you don't understand. I had some comments on the fund, which I do hold, in post 50 onwards on this thread https://forums.moneysavingexpert.com/discussion/comment/67839556#Comment_67839556

Tammer

Hi,


It's always a bit of a puzzle when people are concerned about losing money on their investments and then promptly jump into a hedge fund!


Absolute Return funds always seem to me to be another of those investment cons - "you can get all of the upside and none of the downside". These types of arrangement always come unstuck over the long term.

T

Ryan_Futuristics

I'll repeat my argument for them from the other thread ...

Basically they're a hedge against an unknown future ... They're also a very vague description which can involve all sorts of different strategies, approaches and risks

I mentioned the Yale and Harvard endowment portfolios (which return around 15%/year with very low volatility) allocate about 20% to Absolute Return strategies ... They target about a 6-8% return on these, and are very well diversified (the Absolute Return allocation is a whole portfolio in itself)

Newspapers will criticise any fund or strategy that underperforms for a few years, but the secret to long-term investing is not losing money when asset classes crash (it's very easy making money when everything's rising) and what Absolute Return funds can give you is very broad diversification

Right now the risk with 60:40 portfolios is that bond and equities both look expensive - and lose many of their diversification benefits when rates are low ... You may diversify with property or REITs, but these are looking expensive too (thanks to QE)

I'd recommend a 10-20% allocation to Alternative investments as a way to preserve capital and hedge against losses (be aware both bonds and equities have suffered prolonged periods of underperformance ... longer than most people will be investing)

P2P lending is my favourite alternative ... But there's a limit to how much I'm happy to have invested in any single P2P platform

redbuzzard

talexuser wrote: »

I had the Standard Life for several years and swapped out because it just underperformed so much relatively during growth periods

As you should have expected.

Try charting GARS from launch against say the FTSE all share on a total return basis, and then say it misses the ups and fails to avoid the downs.



It's done a good job for me and I still have a large holding - more than 15% of my total investments. Concerns have been expressed about size, and the team, members of which have been poached by e.g. Invesco and Aviva. Certainly the fund at £20bn+ is several times the size in the 2008/9 equity sell off but against that the system almost certainly has much lower counterparty risk in it than it did then. As to people, the fund is big and prestigious enough to have no problem attracting good people and it is a complement that competitors point their head hunters at SL.

There are other AR/DGF funds and they do not all use the same approach. GARS is diverse within itself but if you want to use AR style funds and you are not happy with all your eggs in GARS' many internal baskets, pick three or four funds. Ruffer unfortunately is closed, maybe consider Troy Trojan or Newton Real Return.

Ryan_Futuristics

And people have to realise the 2009 crash took *everything* down ... There were very few safe havens

There's nothing worse than building up a portfolio of bonds and equities, only to find the whole thing drawing down 50-60%

Traditionally people have used commodities and real assets to hedge against financial assets, but the ups and downs with oil and gold can be stomach churning ... So I think fund employing alternative investing strategies, like GARS and Newton Real Return, may play an increasingly important role in portfolios in the future (and especially in an era where commodities will lose you money and bonds look precarious)

Some other Absolute Return funds I'm keeping an eye on:

Henderson UK Absolute Return; Threadneedle UK Absolute Alpha; and for a very low volatility option, Absolute Insight

Glen_Clark

Ryan_Futuristics wrote: »

There's nothing worse than building up a portfolio of bonds and equities, only to find the whole thing drawing down 50-60%

except perhaps holding cash which should be safe and finding it has lost more through inflation?

kangoora

Where would a fund such as the SL GARS stand in terms of asset allocation i.e. geographically and asset class?

Coming up to retirement and trying to think of something less volatile to potentially limit the downside over the next few years, P2P is not an option for me overall at the moment.

Ryan_Futuristics

Glen_Clark wrote: »

except perhaps holding cash which should be safe and finding it has lost more through inflation?

Well *sometimes* cash is less painful ... But, yeah, not long-term