More than 70% of absolute-return funds posted positive returns in 2012 and 2013 as the strategies continue to pick up assets, according to a spotlight report from Fitch Ratings.
Short-volatility strategies, which are used by most absolute-return funds, have performed better in the past several years compared to directional strategies as market volatility has decreased. Macro and commodity trading adviser funds had negative returns in each of 2011, 2012 and 2013, while relative value and equity market-neutral strategies have been positive each of those years. Relative value was the clear winner in 2012 with returns near 10%.
The drawdown of absolute-return funds in May and June of this year was more severe than in 2011 as a result of increased asset correlation and long credit exposure. “However, funds have been better able to capture rebounds, which suggests that portfolios may not have derisked in an abrupt and untimely manner, as was the case in the past,” according to the report.
Absolute-return assets under management have nearly doubled since the end of 2010 to €200 billion ($271.7 billion). The growth is driven by investors looking to diversify sources of performance, according to Fitch.