Not a single absolute return fund met its investment objectives in 2006, research shows.
The survey by Standard and Poor’s Fund Services also suggests most funds failed to even match the performance of cash.
None of the funds surveyed were able to meet their own investment objectives, usually at least 100bp over Libor before fees.
S&P put much of the underperformance down to a difficult year for fixed-income investment.
But Kate Hollis, lead analyst at Standard & Poors, highlights other reasons for poor performance.
"A number of funds also had reasonably high exposures to emerging market debt and these were caught by the emerging debt wobble in Q2 of 06," she says.
Hollis cites risk management processes as an obstacle, which prevented several managers from effectively responding to the market wobble.
However, Hollis also says a few absolute return funds were on course to achieve their targets before the end of this year, and most were now outperforming cash.
As a result of the survey of 21 absolute return funds during the 12 months to 1 March 2007, no AAA rating were awarded and only a single AA rating.
The AA rating was given to Mellon Evolution Global Alpha fund as the fund was very different from other absolute return funds rated by S&P.
A total of 15 A ratings were awarded, one fund was downgraded to Not Rated, while four funds are currently under review due to recent changes in their management teams.
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