UK IMA flags Targeted Absolute Return underperformers as part of overhaul

The UK’s Investment Management Association (IMA) has begun publicly revealing Targeted Absolute Return funds’ rolling 12-month performance as part of a tightening of requirements, following widespread criticism of the sector.

Previously known as Absolute Return until a move in February to re-name the sector, many of the funds failed to deliver positive returns for investors despite the implied protection offered by the name.

In the face of growing criticism, the IMA launched a consultation and subsequently renamed the sector, but it has now taken further steps to ensure a positive return is achieved. These include publishing a list of those funds which have produced the poorest rolling returns.

The IMA now publishes data on its website, to be updated on a monthly basis, showing how many times a fund has failed to deliver positive returns after charges for rolling 12-month periods since launch.

Although the objectives of absolute return funds vary –  the IMA said earlier this year that performance comparisons across the sector were not advisable – the trade body said there is “a wide expectation among consumers and advisers” that all such funds produce positive returns over 12-month periods.

Among the worst performers by this metric are the RWC Cautious Absolute Rate & Currency, the BlackRock UK Absolute Alpha and the GLG Alpha Select Alternative funds.

All three have failed to produce a positive return in 19 or more of the past 24 rolling 12-month periods, according to the data.

IMA chief executive Daniel Godfrey (pictured) told Investment Week earlier this year funds could eventually be ejected from the sector if they do not meet return requirements, but for now the monitoring process is more informal.

“If there is a fund repeatedly not meeting the objectives, we would discuss that with the group to see if the fund is suited to the sector. It is going to be a regular review and discussion process with firms, but it is more fluid than simply kicking them out,” a spokeswoman for the IMA said.

A number of funds left the sector at the end of May as the IMA’s new definitions and monitoring requirements came into force.

The Polar Capital UK Absolute Return, Aviva Investors UK Absolute Return and BNY Mellon Evolution Global Alpha funds are among those to have moved to the Specialist sector.

GLG said it was not looking to remove the Alpha fund from the sector.

It said despite the poor rolling 12-month performance, losses since launch in January 2010 have been limited, standing at 0.5% as of 19 June.

BlackRock said it had made changes to its UK Absolute Alpha fund recently – replacing Mark Lyttleton with Nigel Ridge – adding it remained committed to the space.

Jeremy Roberts, head of UK Retail Sales, said: “We remain committed to generating alpha on behalf of our clients and believe that the portfolio is well positioned to take advantage of market conditions in the coming months.”

RWC could not be reached for comment.

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This article was first published on Investment Week

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