Invesco Perpetual Global Targeted Returns, Jupiter Absolute Return and Newton Absolute Return are among the most bought absolute return funds in the last year. 
As uncertainty abounded in 2016 following the Brexit vote in June and the election of Donald Trump as US president in November, investors were keen to take risk-off.
As such, the IA Targeted Absolute Return sector was the most popular among retail investors in 2016, reporting £5.1bn in net inflows throughout the year. This was more than double the next most popular sector – IA Global – which took in £2.5bn in retail money.
This trend toward more risk-off assets has continued into this year and, as such, below FE Trustnet looks at five of the most bought funds in the IA Targeted Absolute Return sector over the 12 months to 30 June.
Previously we have explored European and global fund flows as well as those in the UK All Companies and UK Equity Income sectors.
Invesco Perpetual Global Targeted Returns
The most bought fund in the sector is Invesco Perpetual Global Targeted Returns run by former Standard Life Global Absolute Return Strategies (GARS) fund managers Dave Jubb, David Millar and Richard Batty.
The fund is essentially a basket of around 30 trades centred on different themes such as currencies, credit markets, equities, commodities and interest rates.
While not all strategies will perform well at the same time, the fund is run on the rationale that if two-thirds of the portfolio does so then it should meet its objective of achieving positive total returns in all market conditions over rolling three-year periods.
The team left Standard Life Investments in 2013 to set up the new fund, an issue IBOSS co-founder and manager Chris Metcalfe noted had made it difficult for investors to know which strategy to buy.
“The point we had was that we couldn’t tell from the outside whether the three guys that left and set up the Invesco Perpetual version were the best players of the team or whether the best players were still at Standard Life,” said Metcalfe.
Since the new Invesco fund was launched however, it has returned more than doubled the return of the GARS strategy, as the below chart shows.
Performance of funds since Invesco Perpetual fund launch
Source: FE Analytics
“We’ve watched the funds over time since then and now and when you look at it, if you had to say who was doing well it looks like Invesco Perpetual, judging by the numbers, have done much better than GARS,” Metcalfe noted.
As such, the fund has attracted huge sums in inflows during the past year, with £3.89bn of net new money coming into the fund.
With performance uplift also taken into account, the fund has risen its assets under management (AUM) from £6bn to £10.3bn.
In comparison, the GARS strategy has been one of the most sold funds since 2016, seeing outflows of £4.3bn in 2016 and £2.8bn during the first quarter of the year.
Aviva Multi Strategy Target Return and Aviva Multi Strategy Target Income
The biggest area of concern for investors in the GARS strategy is the defection of a number of managers from the strategy to new firms, with some members finding their way to the Aviva absolute return team.
Indeed, former GARS manager Ian Pizer is a manager on both Aviva Multi Strategy Target Return and Aviva Multi Strategy Target Income while fellow former GARS analyst Brendan Walsh is also on the Target Return fund.
They are joined by Peter Fitzgerald and Dan James on the Aviva Multi Strategy Target Return fund, which has experienced £2.6bn in net inflows over the past 12 months to the end of June.
When its performance is factored in, the fund has grown its AUM from £2.2bn to £4.9bn over the last year.
Since launch in July 2014 the fund has returned 8.86 per cent, 3.51 percentage points ahead of the Standard Life fund.
Meanwhile, the Target Income strategy, which Pizer runs with Fitzgerald, Walsh and Gavin Counsell saw net inflows of £1.3bn and its AUM grow to £2.4bn from £1.1bn despite a negative performance impact of £79m.
Since its launch in December 2014 the fund has returned 6.26 per cent, 5.43 percentage points ahead of GARS’ 0.83 per cent return.
Next up is James Clunie’s Jupiter Absolute Return fund, another long/short strategy that focuses on generating absolute returns over a rolling three-year period.
Last month, Psigma senior investment analyst Daniel Adams noted that the firm had recently added the fund to its portfolios as a defensive holding.
“Markets are frothy at the moment, we believe, so finding investments that perform well in tough environments is absolutely key to strategies,” he said.
“Amongst the peer group this fund stands out as predominantly mitigating downside risk, it offers genuine diversification and James Clunie really does have a speciality in shorting.”
Since launch, the fund has returned 21.26 per cent while experiencing monthly volatility of 4.8 per cent and a maximum drawdown – the most an investor could have lost – of 3.36 per cent.
Performance of fund vs benchmark since launch
Source: FE Analytics
This performance is in spite of markets continuing to rise steadily, as the manager has been shorting many stocks in the US including Netflix and Tesla for the last couple of years.
Indeed, the fund is 21.5 per cent short in the US while 20.6 per cent long in the UK. Overall it is net 33 per cent short and 36.3 per cent long.
The fund reported net inflows of £851m over the past year, taking its AUM from £358m to £1.2bn, despite a performance loss of £1.25m.
The final fund in this study is Iain Stewart’s Newton Real Return which is a multi-asset proposition.
The team at Newton take a global thematic approach to investing which focuses on structural changes impacting the global economy such as demographic shifts and the growing demand for healthcare.
In its latest factsheet, Square Mile Research noted: “The key attractions of this fund are the established Newton Global Thematic approach that is at the core of the process, combined with the experience of Stewart.
“We think this is an appealing option for investors seeking a fund that is focused on capital preservation and delivering positive absolute returns over the long term.”
The fund has a benchmark of Libor plus 4 per cent, which it is slightly behind over 10 years, though this is comfortably ahead of the sector, as the below chart shows.
Performance of fund vs benchmark and sector over 10yrs
Source: FE Analytics
Over the 12 months to 30 June 2017 the fund saw net inflows of £807m, despite net performance loss of £69m. Overall the fund’s AUM rose from £358m to £1.2bn.