Effectively this gives the fund very low volatility with a focus on protecting capital
Over the past ten plus years bonds have enjoyed a bull market; this is likely to be coming to an end. Investors can no longer expect the same level of returns and potentially there could be greater volatility. Volatility is what investors hate – this is the swing in the value of their investments, either in a positive or negative direction and for bond investors it’s definitely not what they are after!
However, investors continue to allocate assets to bond funds because of the perceived low volatility and capital preservation as well as growth and/ or income.
The question is whether there are alternatives and if there are what are they? One sector which has gained popularity is the absolute return sector. There are obvious reasons for this, in many cases it enables investors to gain exposure to the equity market (and therefore capturing some of the upside) whilst protecting on the downside. So effectively equity type growth with bond like volatility, a perfect combination.
One fund we have recently been introduced to is the Jupiter Absolute Return Fund. The concern we have with all these funds and in particular this fund is that the performance although beating the benchmark appears poor. In fact the returns have been negative for every year since launch when taking into account inflation.
This fund has had a change of fund manager who comes with a barrel load of experience in this field. In the twelve months since he took over the fund the return has been 2.59%. What we wanted to establish was whether investors moving from bonds and cash to equities might use this as a vehicle to gain that exposure, whether perhaps it should be used as a part of an overall portfolio or whether it is just not worth investing in.