Investors are flocking to the "promised land" of absolute return funds (ARFs) as the sector catches up with the corporate bond market, Old Broad Street Research (OBSR) says.
Speaking at the annual Personal Finance Society (PFS) conference in London yesterday, OBSR research director Richard Romer-Lee said although the last 10 years represent a "lost decade" for investors, the present climate presents a wealth of opportunities.
"It is a very exciting time for advisers - there are some good solutions out there for customers," he said.
He says while corporate bonds have been top of the sales chart for the first part of the year, the fixed income market will likely come under pressure. Absolute return funds, on the other hand, are proving increasingly popular to the retail market.
Romer-Lee says ARFs potentially offer the "promised land" of hedge fund-like vehicles for individual investors.
"Demand for ARFs amongst retail customers is certainly picking up," he says, adding while the vehicles are not without risk, they offer broader choice.
"Investment professionals can manage assets in an alternative fashion to achieve different outcomes. And unlike equities and cash, a manager can change their risk profiles."
The IMA absolute return sector launched in April 2008 and is rapidly gaining momentum. With eight funds currently in existence, a host of new offerings are planned for next year, with Jupiter among them.
"We are starting to see the proliferation of funds," confirms Romer-Lee.
ARFs have multi- and single-strategies, with both equity and fixed income varieties. Cazenove's UK Absolute Target fund is targeting a return of 8-10% per annum.
Romer-Lee cites the Threadneedle Absolute Return Bond fund as a robustly-performing fixed income directional ARF.
He warns, however, that the sector is complicated and advisers must get to grips with it.
"They are a hell of a challenge for advisers to understand. They must be careful when selecting funds."
But he says they are potentially "great news" for investors because they widen the range of investment options.
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