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Investors warned on bonds marketing trap

Investors have been cautioned that bond managers are increasingly using the phrase 'absolute return' to market their credit funds, despite the fact that they have experienced substantial drawdowns.

Speaking to nestegg.com.au’s sister publication InvestorDaily, Alex Gitnik, Standard Life Investments' fixed income and absolute return investment director, said investors must be “really careful” when they choose absolute return funds.

“There are genuine absolute return bonds funds and there are absolute return pretenders,” Mr Gitnik said.

“As a result of market trends and demands for absolute bonds, we saw some managers effectively rebranding or rebadging their funds,” he said.

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Some so-called 'absolute return' bond funds are down between five and eight per cent for the year to date, Mr Gitnik said.

“That is just not consistent with the term 'absolute return',” he said, which implies a certain amount of capital preservation or 'insurance'.

Andrew Yap, Zenith Investment Partners head of income and multi-asset research, told InvestorDaily there has been a lot of 'hype' about unconstrained fixed interest strategies in recent months.

For its purposes, Zenith divides the unconstrained fixed interest universe into 'absolute return', 'total return' and 'alternative debt' funds.

“Absolute return funds are deemed to be the most conservative across the unconstrained space,” Mr Yap said.

“It is, however, important for investors to be wary about the names ascribed to funds.

“Many funds are badged as 'absolute' return; however, as there is little consistency with regard to industry standard/naming conventions, it can be challenging to make like-for-like comparisons,” he said.

Mr Gitnik, who is based in the UK, said the Financial Conduct Authority (the UK regulator) is “getting worried” about the rebadging of credit funds as 'absolute return' bond funds.

ASIC did not respond to request for comment in time for deadline.

 

Investors warned on bonds marketing trap
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