Absolute return funds, products that promised investors positive returns in all markets, are on track to record their worst year yet after suffering poor performance during the coronavirus market shock.
European investors withdrew € 18.6 billion net from absolute return funds, which include former successful products such as Standard Life Aberdeen’s Guys as well as quantitative strategies led by AQR and BlackRock, in the first 10 months of the year, according to data provider Morningstar.
That’s just below the € 21.3 billion that was withdrawn from funds throughout 2019, making the industry likely to end 2020 with its highest annual outflow in history, Morningstar said. .
The data covers funds domiciled in Europe classified by Morningstar as alternative multi-strategy. These products invest in a range of assets and derivative products to achieve a level of return greater than cash, regardless of market conditions.
Morningstar analyst Francesco Paganelli said investors were frustrated with funds’ inability to protect them against losses during the coronavirus. sale earlier this year.
“ are supposed to provide protection or good returns in times when traditional asset classes are struggling, ”he said. “But most of these funds failed to deliver the crisis alpha that many investors expected in March.”
The recent issues with absolute return funds raise further questions about the future of products, which were once one of the hottest growth areas in asset management.
After experiencing huge asset growth in the aftermath of the financial crisis, funds began to lose their luster when they failed to deliver during the market turmoil at the end of 2018. According to Morningstar, European multi-strategy alternative fund assets have fallen by more than a third over the past three years.
While returns improved for some absolute return funds as the market rallied in the second and third quarters, Paganelli said large losses during the height of the turmoil had scared investors.
The least sold products are BNY Mellon Real Return, Aviva Investors Multi-Strategy Target Return and Gars funds, which respectively suffered performance losses of 15.5%, 9% and 7.5% between mid-February and mid-February. -March.
Invesco’s Global Targeted Return fund suffered the highest outflows in the category, with € 2.9 billion between January and October. Although the fund posted smaller losses than its peers in March, its performance has been negative since the start of the year, Morningstar said.
Quantitative strategies such as the LFIS Vision Premia fund, managed by French fund group La Française, and the BlackRock Style Advantage fund have also bled money after their returns were hit by the poor performance of value stocks. Funds have lost 8.4% and 22.5% respectively since the start of the year.
Standard Life Aberdeen and BNY Mellon, whose year-to-year fund returns are now in positive territory, said absolute return strategies will continue to play a role in portfolios as investors seek flexibility in an environment increased uncertainty in the markets.
Aviva Investors, whose fund has also been up to date for a year, said it believes in its strategy to meet investors’ long-term goals.
Scott Thomas of Invesco said his team preserved capital in the first quarter of this year, adding that the fund would remain relevant, especially as investors faced lower returns on traditional assets.
BlackRock said that while the entire industry had met investor expectations, it was “inevitable” that some funds had underperformed due to the high dispersion among managers. The Frenchwoman declined to comment.