Absolute return funds - my guide

In lean times where can investors turn to for relative security and decent yields? Unfortunately, they cannot turn to the banks or building societies who seem to be intent on cutting deposit rates closer and closer to zero.


Most investors and savers, having endured the credit crisis, are now in the grip of an income crunch. However, low risk investors may not want to place all their money into even slightly higher risk investments.

More recently absolute return funds have become very popular as they seek to achieve positive returns over a rolling period of no more than three years. These funds differ from traditional funds as they trade in non traditional assets. By using these specialised techniques their aim is to be different from the market and make money in most conditions.

So could these funds be the answer to the prayers of the lower risk investors? Unfortunately the answer is no as during the extremes of the markets where the FTSE 100 saw record highs in April 2015 of 7,103 yet reached lows of 5,536 by February 2016. The average performance of the Absolute Return sector for this period was -0.44 per cent.

Kieron Bassett


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So having ruled out these funds for the investor keen to protect capital but dissatisfied with returns by High Street banks what other choices are there?

One option may be structured products which offer defined upsides and downside protection, with these products showing an uplift in popularity in recent months due to continued volatility. The plans I tend to favour in this environment are plans which will cover the investor for up to £75,000 in the unlikely event of the failure of the company offering the product. If you are considering investing then the minimum term available is four years with up to a maximum term of six years and there are many different products, but to give you a flavour I will just mention one. A four year plan with Investec invests in the FTSE 100 and if the market is higher in four years time you will receive a return of 16 per cent but if the FTSE declines you just get your money back.

This product is one of the most basic structured on offer and there are others that may be better for your personal circumstances. However, it is imperative you take independent advice from a chartered financial planner to ensure you receive the right advice and buy the product right for you.

Kieron Bassett