SECTOR PROFILE

In an environment in which equities and bonds have fallen in tandem , it is little wonder investors have been left searching for other assets that can add some form of diversification to their portfolios . After a decade in which investors have been well rewarded for holding a 60 / 40 mix of stocks and bonds , surging inflation and rising interest rates have seen the model break down and correlation between the asset classes rise . For example , while the MSCI World index is down 11.4 % in local currency terms this year , the ICE BofA 1-10 Year US Treasury index is down 4.9 % and the FTSE Actuaries UK Conventional Gilts All Stocks index is down 12.5 %.

Chris Metcalfe , investment and managing director at IBOSS , says the first quarter of 2022 was the worst period for bonds in history , while so far it is just the second year in 20 that the asset class has fallen simultaneously with equities . This has led to a renewed search for assets that not only hold up when equities fall , but also provide a hedge against inflation . However , while real assets such as property and infrastructure have been talked up by fund buyers , one area of the market that remains out of favour is the IA Targeted Absolute Return sector .

Theory and reality “ Absolute return funds have always , in theory , had the ability to produce returns uncorrelated to the major asset classes , but there have been many more failures than successes ,” says Metcalfe . “ The funds themselves often tend to be idiosyncratic in nature and difficult to judge against peers , with benchmarks that provide little guidance to expected returns .” The make-up of the 104 funds in the sector proves it is far from

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