Absolutely no returns?

New figures from Financial Express show that the majority of funds in the IMA Absolute Return sector failed to beat inflation to deliver positive returns in real terms in the 12 months to 30th June 2011.

Only 43% of funds in the IMA Absolute Return sector managed to preserve capital values in real terms and avoid making losses.

Looking at the 69 funds in this sector, only 24 managed to beat both RPI and CPI measures of price inflation.

A further 3 funds managed to beat CPI, which stood at 4.2% for the year to June, but failed to beat the higher RPI target.

11 of the funds in the Absolute Return sector lost money in absolute terms over the past year.

It is worth nothing that these figures do not account for fees, so an even higher number of Absolute Return funds would have lost money for investors in real terms.

An Absolute Return fund aims to deliver a positive investment return consistently, regardless of investment market conditions. They are often benchmarked against the return you would get from cash, plus an additional investment return.

These funds use a variety of financial instruments, including short selling and futures, in an attempt to achieve this goal. They are similar to hedge funds in this respect, although possibly better suited to the retail investor.

One important feature of Absolute Return funds for investors to understand is that they tend to be more expensive than traditional retail investment funds. It is for this reason, and the often opaque nature of how they are managed, that we tend to keep clear of Absolute Return funds at Informed Choice.

Photo credit: Flickr/Martin Bamford