Henderson: Advisers being misled by IMA on absolute return funds

Advisers are being misled by the Investment Management Association’s definition of absolute return (AR) funds, according to a senior figure at Henderson Global Investors.

Speaking at the Thames River Multi-Manager Forum Academy yesterday, Jon Hodesdon, associate director of multi-manager accounts, said the IMA's lack of clarity around the funds puts IFAs in an "awkward place" when trying to advise on them.

The IMA's definition of absolute return funds - ‘managed with the aim of delivering absolute (i.e. more than zero) returns in any market conditions' - was "fair enough", Hodesdon said.

But he said the accompanying footnotes could mislead advisers.

"The devil is in the detail, and it is the detail that can come back and haunt you," he said.

"I'm not sure that the IMA has got an exact, clear definition of what funds in this sector are trying to achieve."

One of the footnotes - that performance comparisons are "inappropriate" due to the diverse nature of the objectives of absolute funds - was "not very helpful", he said.

Hodesdon said the self-elected nature of absolute return funds and the lack of asset-based monitoring was something advisers "have to watch for".

A spokesperson for the IMA said the label absolute return and the definition of the sector itself are both topics for discussion in its annual review process of the sector, and it hopes to report back on the review before the end of the year.

One option being looked at by the IMA is to link the absolute return sector with the managed sectors, indicating whether it sits at the more or less conservative end of the spectrum.

Another option would be to place the absolute return sector within a group of alternative sectors.

The absolute return sector has been repeatedly criticised this year. In July, data from FE Analytics showed less than half of funds offered beat inflation.

Shortly after, Morningstar scrapped its absolute return category from its sector classifications, saying too many funds in the space have failed to produce a positive return.