I was carrying out some research in line with my role of being on the investment committee here at Rutherford Hughes, and decided to look at an area where we have made the conscious decision not to invest.
Clearly, it is important to review previous decisions.
We have a jaundiced view of what are known as “Alternative Investments” or “Absolute Return Funds,” as they are also known. The reason is that we are yet to find one that does what it says on the tin. Why are we cynical? Simply because we do not think that calling markets or “clever” financial engineering works. The idea of something that performs well in all market conditions would be something of a “Holy Grail” in investment terms. But we believe that it is a myth.
So, I took to Morningstar, one of the World’s leading investment data providers. Inevitably you will find the good, bad and the ugly. I looked only for funds with a record of three years plus, which, even then, is quite short.
Bottom of the pile is one of Credit Suisse’s offerings with an annualised loss of just over 3%pa for the last three years. In other words, this would fund would have lost you around 10% over the last three years.
Top of the tree is Brunswick Growth Portfolio. Heard of them? No, nor had I. That said, their performance has been very good with 13.51% annual return over the last three years. The analysis suggests that it is a little more aggressive than our own A Strategy, but it does not outperform our Strategy.
So, we have had a quick look at the best and the worst. What about the big boys? Well Standard Life’s Global Absolute Return firm has only managed a total return of just 2.1% over the last three years (source Trustnet). That equates to an annualised return of around 0.6% over the period. You would not be quite so upset until you realise
that it holds over £21Bn of investors money. That is a huge amount receiving no better return than being on deposit. Compared with, say, our A Strategy, that means that investors have missed out on around £8Bn which they will never recover.
So, are we right to ignore these absolute return funds? In our view we are. There is no consistency in approach or return, and these are what we require from each fund that we choose in each sector of our portfolios.
At least I can now log this as completed research on our portfolios to see if we can add further value to our portfolios and our investors’ returns.
Peter Rutherford is a Director at Rutherford Hughes Ltd. He can be contacted on 0191 229 9600 peter.rutherford@rutherfordhughes.com
