Investment Trends

Are The Glory Days Over For Europe’s Absolute Return Funds?

Assets in the sector have shrunk, but some funds retain investor interest

A new report from Cerulli Associates evaluates cross-border mutual funds and ETFs in the major European asset management markets. Access full report here.

August 30, 2023, LONDON—The assets under management (AUM) of Europe-domiciled funds that include “absolute return” in their name declined by €6.1 billion (US$6.6 billion) during the first seven months of 2023, reinforcing suggestions that the strategy is in an ongoing decline, according to the latest issue of The Cerulli Edge—European Monthly Product Trends.

“Recently, some of Europe’s major asset managers operating absolute return strategies have either merged or closed their absolute return funds or announced plans to do so,” says Fabrizio Zumbo, director, European asset and wealth management research at Cerulli Associates, a global research and consultancy firm.

The sector’s AUM fell 30% between year-end 2013 and year-end 2022. Much of this decline can be attributed to outflows from Abrdn Gars and assets moving outside of the sector, rather than being invested in other absolute return funds. AUM for the sector decreased 55.6% between its peak year of 2015 and 2022. The erosion continued in 2023, as asset allocators switched out of absolute return strategies and into long-only global equity and fixed income. The sector has struggled to attract new investment in recent years, with flows being net negative between 2016 and 2020 and again in 2022 and 2023 year to date.1

From 2019 onward, total liquidations of funds with absolute return in their names have exceeded the number of launches. During the first seven months of 2023, four such funds were launched and eight were liquidated.2

Absolute return as a fund category has only a loose sector definition, which can be a significant issue for allocators thinking in terms of asset types and associated risk/return profiles, rather than outcomes. “Performance has been another issue for absolute return funds. Investors have voted with their feet when certain funds have missed their positive return targets,” says Zumbo. In this regard, some 29% of surviving funds with absolute return in their name have delivered a negative return in the three years to the end of July.3

Given how varied the absolute space is, it is not surprising that some funds have bucked the broader sector decline and survived or even thrived. Notably, some of the funds that have amassed assets in recent years are in the fixed-income space. “Clients are perhaps buying into the exposure to global fixed income more than they are the objective of a positive return over a given period—either way, these funds have been winners within a declining sector,” says Zumbo.




1 Source: Morningstar
2 Source: Morningstar
3 Source: Morningstar
These findings and more are from The Cerulli Edge—European Monthly Product Trends, August 2023 Issue.
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