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The absolute return funds that have made you money year in, year out | Trustnet Skip to the content

The absolute return funds that have made you money year in, year out

03 March 2016

FE Trustnet takes a look at the portfolios in the IA Targeted Absolute Return sector that have consistently made a positive return in the last decade.

By Daniel Lanyon,

Senior Reporter, FE Trustnet

The likes of Newton Real Return and BlackRock UK Absolute Alpha funds among the portfolios that have made you money in nine of the last 10 calendar years, according to research by FE Trustnet.

Of course, no fund is guaranteed to perform as expected in various markets conditions but many absolute return funds seek to alleviate risk by using a blend of strategies so as to give the best chance of delivering a positive return over a certain period of time.

It must also be noted that few funds, if any, consistently make money and a period of strong performance is usually followed by a pull back at some stage.

However, our data shows four funds in the IA Targeted Return sector manged an impressive record of consistency, having performed positively in at least nine of the last 10 calendar years which encompasses what would be broadly considered a market cycle.

In terms of assets and performance, the £9.1bn Newton Real Return fund tops the list having just one negative year in 2011 when it fell 0.35 per cent.

Iain Stewart, who has headed the fund since 2004, has a process that aims to generate returns of cash plus 2.5 per cent net of fees while maintaining a volatility between that of equities and bonds.

This has worked well over the manager’s tenure with the fund ahead of the FTSE All Share index in terms of total return with much lower volatility.

Performance of fund and index under manager tenure

Source: FE Analytics

Adrian Lowcock, head of investing at AXA Wealth, is a fan of Stewart’s approach and has been buying the fund recently.

“Stewart runs an unconstrained and flexible approach which initially uses Newton’s thematic research to identify opportunities and to position the portfolio appropriately,” Lowcock said.


Newton Real Return’s portfolio is a mixture of high quality defensive stocks as well as government, corporate and index-linked bonds. He also has some commodities, infrastructure and floating rate notes as well as index futures and options to hedge against equity market risk and cash.

The fund has a clean ongoing charges figure [OCF] of 1.11 per cent and yields 2.13 per cent.

BlackRock UK Absolute Alpha also features, having only just one negative year, also 2011, when it lost 7.06 per cent - more than half the fall of the FTSE All Share index.

Nick Osborne has managed the fund since 2008, being joined by Nigel Ridge in 2013, over which time it has returned 21 per cent while the FTSE All Share index gained 37.78 per cent.

However, the fund’s volatility has been much lower than that of the index.

Performance of fund and index under manager tenure

Source: FE Analytics

So far in 2016, though, it is down 3 per cent. The fund has a clean OCF of 0.93 per cent.

GAM Star (Lux) European Alpha also fits the bill, having lost 10.83 per cent in 2008, although this was almost a third of the drawdown of the index. It is also down this year, 4.22 per cent however.

The €976m fund, which is a Luxembourg-based SICAV, is less well known to UK investors than other similar funds, despite its co-managers Gianmarco Mondani, Paolo Longinotti and Roberto Cantaluppi have been at the helm since 2003.


The trio have a long/short strategy on European stocks and say in the recent correction both books helped bolster returns but ultimately the fund has fallen twice as hard as the index.

“We suffered severe corrections on a few longs. The long book benefited from the appreciation of a number of positions, in spite of falling markets.

“These were primarily in defensive sectors, examples being Fielmann, Givaudan, Snam, Onetx, Swedish Match and Eiffage. Within defenses, the recovery in demand allowed Thales and Rheinmetall to further advance.”

“The short book benefited from poor numbers reported by a couple of Spanish banks, an asset manager and a general decline in many industrial stocks where valuations do not seem in sync with the current global economic challenges. These gains were somewhat restrained by bounces in some companies that were very weak last year.

The fund is – just – ahead of the index over 10yrs, but once again has delivered significantly lower volatility and better risk-adjusted returns.

Performance of fund and index over 10yrs

Source: FE Analytics

The fund has a total expense ratio of 1.54 per cent and a performance fee.

Last but not least, Smith & Williamson MM Cautious Growth as also achieved this feat. The £15.6m portfolio is headed by James Burns (since 2005) and Genevra Banszky von Ambroz (since 2004). The pair aim for long-term steady capital growth through a portfolio that usually has at least half of assets in zero dividend preference shares – both real and synthetic.

These are the shares issued by ‘split capital’ investment trusts, have been ignored by investors over the years following a major scandal about 10 years ago.


Smith & Williamson MM Cautious Growth can also invest in more conventional securities and also owns stakes in property, infrastructure and private equity.

Its only down year was 2008, when it lost a – relatively compared to the other funds mentioned – hefty 20.81 per cent. Over the last 10 years, it is up 35.29 per cent but has delivered less than a quarter of the volatility of the index.

Performance of fund and index over 10yrs

Source: FE Analytics

The fund has a clean OCF of 0.78 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.