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Monday, August 30, 2010

Will Absolute Return Funds Live Up to Their Promise?

News summary by MFWire's editors

Absolute return mutual funds are hot, but are their market-neutral investment strategies working? Fundsters interested in the booming, alternatives-based niche funds may want to take a look at Mark Jewell's Thursday column in the Associated Press. (The column ran in several papers yesterday.)

Fundsters may not be surprised to see Jewell attacking absolute return funds again, as he penned a similar article in March 2009 criticizing the funds' average year-over-year loss of 11.7 percent, even as the Dow dipped 44.85 percent year-over-year (see The MFWire, 3/3/2009).

Jewell now writes that absolute return funds are "already falling short of expectations in many instances," noting that seven absolute return funds have already shuttered while only 21 survive. Over three years, they averaged a gain of 0.7 percent, according to Morningstar.

Eaton Vance Global Macro Absolute Return [see profile], Nakoma Absolute Return [see profile] and UBS Absolute Return Bond [see profile] all gain mentions in Jewell's piece. He also cites Putnam's fixed income chief, Rob Bloemker [see profile]. (Jewell writes that Putnam's four absolute return funds, two of which are co-managed by Bloemker and all of which are relatively new, have "been performing as intended.")

The AP columnist also offers an overview of absolute return funds and talks with two industry consultants, Financial Products Research president Rob Ivanoff and Geoff Bobroff of Bobroff Consulting. Both consultants offer concerns about absolute return funds maintaining flows (Jewell cites Strategic Insight data that says absolute return funds have already brought in over $7 billion in 2010), while Bobroff also worries that such funds will have difficulty adjusting if, say, the Federal Reserve reserve raises interest rates. 

Correction: A previous version of this story wrongly listed Rob Ivanoff as president of Financial Research Corporation (FRC). He previously worked for FRC, but he now serves as president of Financial Products Research.

Also, a prior version of this story included a link to an abridged version of Mark Jewell's column that lacked both specific performance data and mentions of particular funds. The link now points to the full column, and this story has been updated to include data and fund names.

Edited by: Neil Anderson, Managing Editor

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