Zenith has announced the results of its ‘Real Return’ category, the final of three to be released as part of its 2014 Multi-Asset Review. In total 11 funds received a rating including 6 new offerings. One rating was reinstated and a further rating remains ‘pending’ as at the time of this release.
Senior Investment Analyst, Andrew Yap, stated that “following the establishment of a dedicated Real Return Category in 2014, Zenith has observed significant investor interest in this market segment, and this has been accompanied by a proliferation of new offerings and material fund flows. We attribute much of the category’s recent success to the perception by investors that more traditional and constrained multi-asset strategies may at times be less conducive to an ever complex and dynamic investment landscape”. While Zenith remains impressed by the degree of innovation observed across this category, we also highlight that there exist strategies that have relatively short performance track records and by consequence have yet to be tested across the course of a full market cycle.
Investors should note that not all funds in this category are the same. Whilst a common feature continues to be the desire of category participants to generate absolute returns over the longer term, a key area of difference is the magnitude by which investment managers seek to generate a return in excess of cash (or inflation). Zenith notes that the greater the degree of ‘outperformance’ targeted by managers, the more likely they will be to engage in strategies such as leverage, shorting and the incorporation of illiquid holdings. Subtle differences also exist with regard to product structure and the benchmarks adopted for performance reporting purposes. By consequence, Zenith believes that investors seeking exposure to this market segment need to be mindful of product nuances and associated risks before determining which funds are likely to be most appropriate given risk/return preferences.
In the week ahead, Zenith will release its 2014 Multi-Asset Sector Report which will provide a summary of key research findings together with a listing of ratings and conviction ranks across our three categories being single-manager, multi-manager and real return.
