Why I despise fund managers using inappropriate titles…especially Absolute Funds
Wednesday, 29 April 2009
Absolute Return and Absolute Growth funds claim to offer investors the elusive investment prize....making money in a falling market!
Does it work? Ask yourself this question, what does Absolute Return and Absolute Growth funds mean to you?
In my view that means a positive return on an investment over time.
These funds are supposed to use various financial tools to minimise the downside. Yet it appears not to work. The FT quoted on March 27 the following...
“Paul Branigan admits that Premier Absolute Growth is "not the easiest fund to explain". It contains a cocktail of structured products, closed-end fund of hedge funds and zero-dividend preference shares - vehicles that retail investors and even wealth managers will struggle to understand, partly because their structures are complex, partly because the underlying sources of risk and return are various and opaque.
With a crisis that many blame on the over-sophistication of finance, particularly the practice of reassembling old asset classes into new ones, have funds like Absolute Growth had their day?”
I was interested in a comment made recently, a Turkey would not vote for Christmas. The managers of these funds are not going to promote these funds in a negative way, as that would be like giving up and sacking themselves! Instead they put a brave face on, and say things like.... “Mr Branigan's defence is that the alternative offers little scope for differentiation. If you look at long-only funds, in the end they're all much of a muchness," he says. "A manager who is good one year will be bottom next year. With some exceptions, there's little consistency. A fund that is offering something different has its place."
But during the banking collapse last autumn, differentiation proved elusive for managers focused on absolute and relative returns alike. Premier Absolute Growth fell 29 per cent over the year to March 16 -a whisker above the average fund in the UK All Companies sector, which lost 33 per cent.
"We should be able to produce positive returns in normal conditions but we're not designed to cope with the kind of hiatus in markets we saw last year," Mr Branigan says. "We're always going to be impacted."
If they are going to be impacted, why call themselves Absolute return funds?
I really do believe we need more honesty in the marketing of investment products to retail consumers and certainly in my view Absolute return funds do not appear to offer what they say on the tin!
In these volatile times, with confidence low, investors need transparency and a greater understanding of what they are investing into…the fund managers have to rebuild trust but Absolute Return funds are probably not the way forward.
posted by Murray Round Wealth Management @ 11:08,
The Authors
Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
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