Even water is bad for you if you have too much of it, but it
does not come with a health warning. So it is probably not
surprising that all regulated investments aimed at retail
customers come with wealth warnings.
What is baffling however is that retail investors are being
warned that absolute return UCITS sector that is prone to
mis-selling, according to a Fitch Ratings report.
But are absolute return UCITS riskier than other
investments? Some investments appear to be riskier than others.
Does the apparent perception of extra risk mean that these
types of investments should come with an extra layer of
The report states that the sector is riskier because there
are no commonly agreed, standardised definition of what is an
absolute return fund is.
Also investors may be disappointed by the products if they
do not understand the risk/return characteristics and the
products may face style drift.
Absolute return UCITS funds do not come with guarantees
attached, but aim to achieve a positive return over specified
period of time, and when purchasing these funds retail
investors should be told of the potential risks. Like all
investmentsespecially in the hedge fund spacethere
are some great ones and some are utter rubbish that should
never see the light of day. No sector or strategy is exempt
However, to label any particular class of retail regulated
investment product as dangerous or to say that there is an
increased chance of mis-selling is misleading as you cant
look at the sector in isolation.
We are entering into an age where financial markets
especially equity markets are expected to be more volatile
because of geopolitical problems, sovereign debt crises and
government manipulation of some markets have created imbalances
in highly correlated markets.
Indeed the last decade has seen some great rallies
which I am sure absolute return managers did not fully capture.
However, if an investor invested in a fund right before the
dot-com crash in the early part of the last decade and took
their money out in the aftermath of the credit crunch I am sure
that the investor would be disappointed if the fund manager
just beat its benchmark by a few percentage points as the
amount they invested would have decreased.
Absolute return funds endeavour to preserve capital and
create slow steady returns over time especially if the
returns are compounded. Like any investment investors should do
their due-diligence or ask questions from their investment
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