Real Return funds demonstrate value in volatile periods

Real Return funds have proven their worth, according to Zenith Investment Partners, by protecting capital during the sell-off in the fourth quarter of 2018.

In the last three months of 2018, the ASX 200 lost 7.7% while the All Ordinaries lost 8.5%, although this was better than global indices such as S&P 500 which lost 11.6% over the same period.

According to the firm’s sector report on Real Return funds, the funds outperformed their growth counterparts during the volatile period thanks to their capital preservation qualities.

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However, this performance was muted in the early stages of 2019 when they lagged their growth peers as a result of their conservative stance and evolving market conditions making a staged deployment of capital difficult.

Nevertheless, Zenith said their performance during the volatile period warranted their use in portfolios as they demonstrated their capital preservation ability.

Andrew Yap, Zenith’s head of multi-asset and Australian fixed income, said: “Throughout the fourth quarter of 2018, managers of real return funds demonstrated an ability to preserve capital and outperform their strategic asset allocation ‘Growth’ counterparts amidst an extreme environment which saw global equities sell-off aggressively.
“These outcomes were consistent with expectations. However, a high degree of dispersion did occur across the peer group. Broadly speaking success was dictated by positioning leading up to, and subsequently in response to the sell-off.”

Performance of ASX 200 and All Ordinaries index over three months to 31 December, 2018. 

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