Targeted Absolute Return funds aim to offer an element of capital shelter and generate a positive return over a defined period regardless of the prevailing economic environment. This can be appealing to investors in uncertain times. Although, there is no guarantee their aim will be met as they can invest in the stock market which can be volatile.
One such offering is the Jupiter Absolute Return Fund, managed by James Clunie. He employs a long/short strategy; while he seeks to invest in stocks he believes will perform well (long positions) he will also enter into 'short' positions to profit from falling share prices. This strategy relies on him making the right calls, if he gets it wrong, the fund will fall in value.
James Clunie has managed the fund since September 2013 and over his tenure, the fund has returned 4.95%* compared with 0.81%* for LIBOR GBP 3 Month, the fund's benchmark**. However, it has underperformed the IA Targeted Absolute Return sector by 2.3%. Importantly, the maximum fall in the value of the fund over this period was 1.81%* compared with 5.46%* for the FTSE All Share. Although please remember past performance is not a guide to future returns.
Performance of the Jupiter Absolute Return Fund over the manager's tenure
** LIBOR (London Interbank Offered Rate). LIBOR is the average interest rate charged for overnight bank borrowing and is widely used as a reference rate.
Past performance is not a guide to future returns. * Lipper to 02/03/15
|Annual percentage growth|
| Mar 10 -
| Mar 11 -
| Mar 12 -
| Mar 13 -
| Mar 14 -
|Jupiter Absolute Return||-2.74%||1.93%||0.27%||0.89%||3.16%|
|IA Targeted Absolute Return||2.82%||-0.11%||3.98%||5.29%||3.24%|
|LIBOR GBP 3 Month||0.72%||0.92%||0.76%||0.52%||0.55%|
Performance in late 2014 was weak and the manager attributes this, in part, to the fund's long positions in oil firms such as BP and Statoil which fell in value following the collapse of the oil price. However, he remains positive on the outlook for these companies as they have worked to improve how they allocate capital and he expects improved returns over the medium term. Investment in this area currently accounts for 10% of the fund.
James Clunie has been identifying a growing number of stocks which he feels are overpriced. As such, the number of short positions in the portfolio has been growing. These positions have contributed to the fund's recent rebound as a number of the companies he has been shorting, such as SGS, IBM and SABMiller, have reported disappointing revenue growth and their share prices have fallen. In light of the manager's cautious view, around 60% of the fund is currently held as cash, split between sterling and US dollars.
Long positions in companies the manager believed were undervalued have also had a positive impact on recent returns as other investors began to recognise their potential. In particular, the share price of insurance providers Catlin Group and Friends Life have risen on the back oftake-over bids. In addition, holdings in financial firms Deutsche Boerse and IG Group provide trading platforms and have performed well as they benefitted from increased stock market volatility.
Our view on this fund
Given James Clunie's cautious outlook and positioning, the fund’s performance is likely to remain largely uncorrelated to stock markets, so it could provide valuable shelter in tough market conditions. Over the relatively short period James Clunie has been managing the fund, it has underperformed the IA Targeted Absolute Return sector but met its objective to beat cash. This is too short a period in which to judge performance and we would like to continue to monitor the fund before considering it for inclusion in the Wealth 150 list of our favourite funds across the major sectors.