PA ANALYSIS: Absolute return disappointment leaves cautious investors in a fix

Added 16th November 2016

Asset allocators moved materially back into fixed income in the third quarter, often at the expense of absolute return funds, Natixis said on Wednesday.

PA ANALYSIS: Absolute return disappointment leaves cautious investors in a fix

From the firm’s latest UK Portfolio Barometer, put together by Natixis’ Portfolio Research and Consulting Group the move into fixed income was most evident in conservative portfolios, but similar moves were clear in balanced portfolios as well.


What is less clear is whether this three-month move says more about expectations for fixed income or absolute return over the longer term.

According to Natixis the beneficiaries of the move were the inflation-linked and global fixed income categories, implying that “advisers anticipate an uptick in inflation likely due to the weakening of sterling.”

This view of inflation has also been strengthened in recent weeks by the election of Donald Trump to the US presidency and expectations of much greater fiscal stimulus from a Trump White House.

"The danger that lurks among the disappointment with absolute return funds year-to-date is that, having been let down, asset allocators might eschew the sector entirely."

The move out of alternative strategies (predominantly absolute return funds) on the other hand, was evident across not only conservative and moderate portfolios, but aggressive ones as well and was likely due, Natixis said: “to disparate and largely disappointing returns within that sector this year.”

As is evident from the graph on the next page, at an aggregate level, the IA Targeted Absolute Return Sector has lagged other parts of the market significantly year-to-date. What it obscures however, is the range of performance within the sector.

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Vincent McEntegart, manager of the Kames Diversified Monthly Income Fund, explains how he aims to deliver a stable and sustainable income of 5% p.a.*, paid monthly, by investing in a range of asset classes

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About Author

Geoff Candy

Group digital editor

Geoff Candy joined Portfolio Adviser as News Editor in May 2014. He has been a financial journalist and broadcaster since 2005 and, in that time has worked in both South Africa and the Netherlands, covering everything from high street retailers and construction companies to mining and insurance.



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