Fewer than half of absolute return funds beat inflation

In the 12 months to 30 June 2011, just 43% of funds in the IMA Absolute Return sector beat inflation to deliver positive returns in real terms, according to data from FE Analytics.

For investors opting for the Absolute Return sector in an effort to preserve capital and avoid losses, fund selection would have been paramount over the past year.

From a universe of 69 funds in the IMA Absolute Return sector, during the 12 months to 30 June 2011:

24 funds outperformed both RPI and CPI;

3 funds beat CPI, which was 4.2% in June, but failed to match RPI at 5.0%;

18 funds delivered positive returns but underperformed CPI; therefore investors would have lost money in real terms;

11 funds ended the 12 months period in negative territory;

13 funds were launched within the past year.

Of those 56 funds with a 12 month track record, 42.9% beat inflation as defined by both RPI and CPI.

However, 51.8% of funds would have lost money in real terms.  These performance figures do not account for fees so in reality a higher percentage of funds would have failed to keep up with inflation once costs were taken into account.

The best performing funds over the year were: the CF Odey UK Absolute Return Fund, up 38.72%; the GLG Emerging Markets Equity UCITS III Fund, up 29.79%; and the Cazenove Absolute UK Dynamic Fund, up 28.95%.

Looking at groups, L&G Investment Management had the best track record with all three of its absolute return funds comfortably ahead of inflation. The L&G Diversified Absolute Return Trust generated 17.98%; the L&G European Absolute Fund delivered 13.49%; while the L&G UK Absolute Fund rose 8.29%.

Michael Holland, Managing Director of FE, commented: "While absolute return funds endeavour to deliver positive returns, they have never promised to beat inflation.  However, inflation is something investors must bear in mind if they want to preserve their capital and grow their wealth in real terms."