Clearly it has been an extremely challenging year for fund managers to achieve positive returns, with banking, real estate, builders and some retail stocks, having taken a hammering, with many down 50 per cent or more on their pre-credit crunch prices. Even some ‘absolute return’ funds have had a torrid time.
The concept of absolute return funds was launched with great fanfare in 2005 as the panacea to volatile investment markets, in that they aim to produce positive returns irrespective of market conditions, in the same way as hedge funds do.
Instead of comparing their returns to those of a relevant stockmarket index, absolute return funds seek positive performance, period.
They aim to do this by shorting stocks and using other derivative-based investment techniques which retail fund managers have been allowed to use since 2003.
The top three performing funds in the absolute return fund sector, for the year to 1 August 2008, were Blackrock’s UK Absolute Alpha (+11.8%),Threadneedle’s Absolute Return Bond (+7.9%) and JB BF’s Absolute Return PI fund (+5.2%).
The manager of the Blackrock fund, Mark Lyttleon, attributes his impressive performance to shorting shares which he expected to plummet in price and an overweighting in mining stocks.
However, the results of the absolure return sector as a whole have been mixed. While the top performers mentioned above have cut the mustard, the sector’s average investment return was -1.4 per cent,(albeit skewed by a disastrous performance by the UBS Absolute Return Bond fund which managed to fall a staggering -24.9 per cent).
Scottish Widows’ SWIP Absolute Return UK Equity fund fared a little better, but still produced a negative return of -7.2 per cent.
Elsewhere, of the top 10 retail investment funds across all sectors over the year to 1 August 2008, it is interesting to note that five are overseas bond funds (three from M&G, all producing in excess of +12.9%, Threadneedle European Bond (+12.7%) and Investec Emerging Market Debt (16.9%).
Clearly, there are bargains to be had by savvy fund managers who can pick up high yielding corporate bonds which have been over-downgraded due to the credit crunch.
Other top 10 performing funds across all sectors over the last year include, unsurprisingly, those investing in commodities (Marlborough ETF Commodity + 42.5%), First State Global Resources (+ 15.6%), Investec GB Energy (+ 13.8 per cent), and agriculture (Eclectica Agriculture +14.8%).
While investment in agriculture looks set to continue to be a winner given current global food shortages, gold and oil prices have been falling in recent weeks and equity markets remain extremely volatile.
With both the UK and US economies heading into recession and the global economy in hideous shape, it looks set to be another challenging year for fund managers seeking positive returns.
To view the top 10 unit trust tables for the major sectors visit:
Written by PAMELA ATHERTON
Michael Baxter is on holiday
© Investment & Business News 2013