SECTOR PROFILE
direction of bond prices , we could make a case for not including funds in the sector ,” says Metcalfe . “ We don ’ t believe the central banks necessarily have the skills or political independence ,” he adds . “ The fact that many causes of inflation are outside their control means we have been looking closely at this sector again .” Metcalfe says his approach to the sector focuses not on benchmarks , but on what a fund has done during different market conditions . “ In our experience , the cashplus benchmarks don ’ t give much guidance and investors need to be clear about what they actually want a fund to do for them ,” he adds . “ In the past , we have used absolute return funds to dial down the beta of a particular sector , so accept they will probably underperform long-only peers in a rapidly rising market .”
No one to blame Despite the poor performance of 60 / 40 portfolios in 2022 so far , Charles Hovenden , a portfolio manager at Square Mile , isn ’ t surprised that absolute return funds are failing to catch investors ’ imagination .
42.7 %
– amount made by the AQR Systematic Total Return fund so far this year
“ About 90 to 95 % of the sector is not fit for purpose ,” he says . “ In a lot of funds , you are largely getting long exposure which is masquerading as absolute return . This may be fine when markets are going up , but you can count on your fingers the number of funds that preserved capital in tough periods such as 2018 or the first quarter of 2020 .” Yet Hovenden says a small number of funds in the sector can still do a good job . When carrying out his analysis , the manager looks for two traits : the ability to hold up in tough periods , and the ability to provide genuinely uncorrelated returns . “ After finding those funds , it is about putting them together in the right combination ,” he says . “ I would never pick just one fund for my absolute return exposure . In an ideal world I would want to own eight to 10 funds with
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