Over half of the target return funds available to private investors have failed to meet performance goals over the past year.
Research from BestInvest analysed the five vehicles with one-year track records, and three fall short of their annual targets; Baring Directional Global Bond, Credit Suisse Target Return and UBS Absolute Return Bond.
Each of these delivered between 4% and 4.8% after charges, despite targeting Libor plus at least 2% before charges. This would have required a return of at least 6.5%, based on current interest rates.
The only portfolios to meet their targets, using Lipper figures over one year to 21 April, were F&C High Income and Nationwide Target return, both of which incorporate equities within their portfolios.
Graham Kane, managing director at UBS Asset Management, said the UBS fund just missed its target, blaming weak performance on the April 2005 launch, with turbulent bond markets in the wake of the Ford and General Motors downgrades.
Looking forward, he points to six-month returns being well ahead of target.
On Credit Suisse Target Return, the group said the fund is designed to reach its target over a full market cycle and one year is insufficient to make a judgement.
Justin Modray, an adviser at BestInvest, said: "Target return funds would be highly attractive products to investors if they could deliver what they promise as they aim to achieve higher returns than cash."
Modray said weak returns could not be blamed on bond markets, citing the 7% return from the FTSE ABG All Stocks Index over 12 months.
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From 6 April 2019