Zenith senior investment analyst Andrew Yap said there was been a proliferation of new offerings and material fund flows since the establishment of the research house’s ‘real return’ category in 2014.
“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,” Mr Yap said.
While Zenith was “impressed” by the level of innovation across the real return category, it also stressed that some strategies have “relatively short performance track records” and 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,” Mr Yap said.
“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),” he said.
“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,” Mr Yap said.
There are “subtle differences” between real return funds when it come to product structure and benchmarks adopted for performance reporting purposes, he said.
“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,” Mr Yap said.
Zenith’s real return category saw 11 funds rated: nine were ‘recommended’ and two were ‘approved’.
