Charles Hepworth, investment director and member of GAM's managed portfolios investment team, argues that now is the time to consider strategies in this area.
Absolute return funds have been widely tarnished with sub-par performance over recent years; unsurprising when we have seen such large movements to the upside in both equity and fixed income markets since 2009. Many investors, it would seem, have shunned this asset class.
We would argue, however, that now would be an even more appropriate time to think about reallocating, as fixed income markets look overvalued and the recent moves higher in equities leave little room for disappointment.
These five funds offer uncorrelated return paths individually and, when combined as a whole, can be thought to act like a boat’s keel – significantly reducing the roll/volatility in choppier market conditions.
Five absolute return funds for client portfolios
1 GAM Star Emerging Market Rates
This fund, managed by Paul McNamara, Caroline Gorman and Denise Prime, utilises local and hard currencies, seeking to generate returns within a tightly risk controlled environment. The managers use a fundamental top-down diversified approach to create a primarily relative value portfolio of global emerging market fixed income securities, currencies and derivatives.
We like the opportunity set within emerging market currencies, which is still a growing part of the broader FX market and could, arguably, be described as throwing up more active currency opportunities as the underlying economic dynamics of emerging market nations continue to improve. The fund is benchmarked against three-month Libor and its sterling retail share class has returned 12.2% over the last three years to 9/8/13.
2 Julius Baer Absolute Return Bond
This fund, managed by Tim Haywood and Daniel Sheard, aims to generate absolute returns regardless of the prevailing market conditions.
We like the strong long term track record the managers have generated and their absolute return approach to fixed income investing is all the more important for us now that returns from the asset class have become so stretched.
Protecting capital on the downside is one of their key objectives. The use of currency derivatives and swaptions within the fund all help to build in a level of risk control and capital protection. The fund is benchmarked against three-month Libor and its sterling institutional share class has returned 7% over the past three years to 12/8/13.
This article continues…
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation