Fund research house Morningstar has ditched the term absolute return as part of an overhaul of its classification system for alternative funds.
The decision will please the many critics of the name who say it is misleading because it suggests a guaranteed return when in fact many absolute return funds are exposed to volatile assets and have often lost money.
Data from analytics firm Lipper says that during the first three weeks of August, European absolute return funds lost on average 2.5%. Analysis by FE Analytics says that only 43% of the funds in the Investment Management Association (IMA)’s absolute return sector managed to beat inflation in the twelve months ending 30 June.
“Absolute return as a fund category definition has become too associated with a broader industry marketing term that has made performance promises that have often failed to deliver,” said Christopher Traulsen, director of European and Asian fund research for Morningstar
The move adds 18 categories to Morningstar’s classification system of Ucits funds on sale in Europe and Asia. The new names are intended to reflect the fund strategies and where possible the assets they invest in, for instance “long/short equity – Europe”.
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