Absolute Returns Funds

kidmugsy

Whenever I'm interested in cautious funds I look at two investment trusts: Personal Assets Trust, and Ruffer Investment Company. They explain what they do, and they publish their holdings. I'd rather steer clear of people who perform conjuring tricks with derivatives.

Chickereeeee

Ryan_Futuristics wrote: »

What they basically do is look at variance across funds in asset class returns, and use that to determine whether to target active management strategies or indexing

Wherever possible they'll use the lowest cost funds available (such as for property, bonds and US equity, where markets tend to be very efficient) ... But in asset classes where there's large variance in fund returns - such as private equity, emerging markets and alternative investing strategies - they'll seek the best managers

Hey that is what I do.
Are they copying me?

C

Radiantsoul

moneyfoolish wrote: »

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?

To the OP.
Having read your previous posts you are not looking to invest a large amount, and this will be your only investment. If you cannot afford to lose much then you are better off in savings accounts(you can do pretty well with the various bonus offers). If you are going to invest in any other asset there is the possibility you might lose some of it(probably assume 50%). If you cannot cope with this, then you are better off increasing the amount you hold in savings, to bring your total potential loss down to a level you are comfortable with.

Ryan_Futuristics

Chickereeeee wrote: »

Hey that is what I do.
Are they copying me?

C

It's what everyone should be doing - make them

Ryan_Futuristics

I'd say for a small investment, over the medium-term, you can't get much better than 1/3rd in each:

Equity Income
Absolute Return
P2P lending (replacement for corporate bonds)

It's essentially what the large endowment funds boil down to, except they have to spread it much further and wider

Radiantsoul

Ryan_Futuristics wrote: »

I'd say for a small investment, over the medium-term, you can't get much better than 1/3rd in each:

Equity Income
Absolute Return
P2P lending (replacement for corporate bonds)

It's essentially what the large endowment funds boil down to, except they have to spread it much further and wider

I think that kind of portfolio would still have very steep downturns. I don't think equity income or absolute returns offer much in the way of mitigating a downside(it is too early to tell on absolute returns).

The OP is looking to invest £5-6k. The question is are they prepared to run the risk of the investment having over 5 years in return for another few hundred quid.

Ryan_Futuristics

Radiantsoul wrote: »

I think that kind of portfolio would still have very steep downturns. I don't think equity income or absolute returns offer much in the way of mitigating a downside(it is too early to tell on absolute returns).

The OP is looking to invest £5-6k. The question is are they prepared to run the risk of the investment having over 5 years in return for another few hundred quid.

If an absolute return fund's doing what it's supposed to, it should make virtually no difference what the broader market's doing

There's Newton Real Return through the 2008/09 crash



They employ so many different strategies - long and short, currencies, equities, futures - that even total surprise in the markets should be well absorbed ... If you wanted to target high returns, you'd just pick the best three strategies (rather 30, as GARS does) - the Ruffer investment trust seems to be a more focused absolute return strategy, so more volatility, but returns much higher over 10 years

On my portfolio analyser, the worst drawdown is -8.4%, and the worst year -4.2% ... and returns are very close to being 100% equities

Radiantsoul

Ryan_Futuristics wrote: »

If an absolute return fund's doing what it's supposed to, it should make virtually no difference what the broader market's doing

There's Newton Real Return through the 2008/09 crash

They employ so many different strategies - long and short, currencies, equities, futures - that even total surprise in the markets should be well absorbed ... If you wanted to target high returns, you'd just pick the best three strategies (rather 30, as GARS does) - the Ruffer investment trust seems to be a more focused absolute return strategy, so more volatility, but returns much higher over 10 years

On my portfolio analyser, the worst drawdown is -8.4%, and the worst year -4.2% ... and returns are very close to being 100% equities

Obviously if you look at the winners on any metric they are going to do better than the average, but the question is how do you determine a priori which will win. There were some absolute funds that failed to deliver what they promised. The selection of funds is hard, in my opinion harder than going out and buying shares.

It is not obvious to me that having lots of strategies is the best way to reduce risk. It seems unlikely that a spread between Japanese and Korean equities will create a positive return in every market. I am pretty sure it will incur costs though.

Ryan_Futuristics

Radiantsoul wrote: »

Obviously if you look at the winners on any metric they are going to do better than the average, but the question is how do you determine a priori which will win. There were some absolute funds that failed to deliver what they promised. The selection of funds is hard, in my opinion harder than going out and buying shares.

It is not obvious to me that having lots of strategies is the best way to reduce risk. It seems unlikely that a spread between Japanese and Korean equities will create a positive return in every market. I am pretty sure it will incur costs though.

Well Newton Real Return and Ruffer were some of the only Absolute Return funds available in the UK prior to the 2008/09 crash - so there's not much competition back there

The thing is we're not talking about them beating indexes - they don't have high performance benchmarks ... All they have to do is generate a positive return by employing multiple investing strategies ... And most institutional investors are capable of doing this

Owning Korea and Japan won't necessarily offer the same kind of diversification benefits, but if you owned equal parts of each, you'd certainly suffer less downside in the next crash (because they're both at very different valuations today, and cheaper countries have less far to fall) ... And if your platform avoids trading fees, it's no more expensive to own both funds than it is to own one

Glen_Clark

redbuzzard wrote: »

I'm drawn to funds using linkers. That includes Troy Trojan. IL gilts might be yielding -0.5% in real terms but at least it is in real terms! When almost everything else apart from cash that's liquid is correlated, that looks good value as a charge for protecting capital and inflation hedging while the markets are at an all time high.

Trojan is also holding cash and gold. Cash presumably gives it firepower when opportunities come, and gold...well the main criticism of gold is that it has no yield, but when IL gilts look attractive at -0.5%, maybe gold as a diversification and an inflation hedge is not so unattractive.

I wouldn't hold IL gilts or gold directly, or a large allocation of cash, but I'm not unhappy about trusting a respected fund manager to use all three to protect value when equity prices are propped up by QE, bond yields appear to have overwhelmingly one way to go, and "high yield" bonds that should really be called "junk" are at only 5%-6% with a high default risk.

Interesting times, or maybe there is nothing new under the sun!

Well yes but when I say inflation I mean the real rate of inflation including housing costs. Not the Government's fairytale rate for people who live in an LCD television, wear Ipods, eat Blu Ray Disc players, commute to work on a CD player, and never plug any of them in