Absolute return funds are correlated with other asset classes

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According to Charles Hovenden, portfolio manager at Square Mile, absolute return funds typically retain a large position in equities throughout the market cycle and therefore end up not being the uncorrelated asset classes that clients are looking for. wait.

Hovenden said: “Some people see the problem with these funds is that they have grown too big, or that they cannot operate in an unconventional monetary policy environment, the latter is a reason why many managers industry funds themselves point out, but I think the problem is simply poor execution of the strategy.

These funds raised a lot of capital, and at the beginning they did well, then they did badly. The problem lies in the execution of strategies, rather than in the whole market or industry. “

He added that: “One of the problems with these funds is that they tend to have a constant overweight in stocks.

“When I ask them, they say it’s because in the long run stocks go up. But if you overweight stocks in all market conditions, then you get the volatility of stocks, which makes these fund minus a diversifier.

“But also, if you look at how these funds actually behave, they underperform during the bullish stock markets. So you get a lot of volatility in stocks, not getting a lot out of the rise in stocks.”

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