The watchdog launched a wide-ranging review of the asset management industry last year and confirmed to International Adviser that absolute return funds will be scrutinised as part of its investigation into whether investors are getting value for money.
“We are looking at absolute return funds as part of the overall asset management market study.
“Across the market study we are looking to understand how competition works for asset management products and services and how investors can get value for money,” said an FCA spokesperson.
The funds, which attempt to overcome the volatility of equity markets, claim to provide positive investment performance in all market conditions.
As a result, investors have poured money into the strategy in recent years, with the latest Investment Association (IA) figures showing net retail sales for June 2016 as £221m (€255, $285m).
However, two-thirds of absolute return funds have posted negative returns for this year, with the worst offenders down around 20% since January, according to Morningstar data.
Last week, Europe’s best-known and largest absolute return fund Standard Life Investment’s £26.2bn Global Absolute Return Strategies Fund (GARS) suffered from outflows of £400m in the second quarter.