If you’re looking for ways to generate profit amid a difficult investing environment, you might’ve already come across absolute return funds during your search. In this article, we’ll talk more about this investment option, in particular Argonaut Capital Partners’ VT Argonaut Absolute Return Fund offering.
London-based boutique equity fund management firm Argonaut Capital Partners was founded in 2005 by fund manager and European equities investor Barry Norris. There are long-only and long/short equities funds under the firm’s management.
Norris’ unconventional investment strategy is the driving force behind the fund, which is based on the concept of “earnings surprise.”
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What are absolute return funds?
Alfred Winslow Jones, an investor and hedge fund manager in New York, launched the first absolute return fund in 1949. Regardless of market direction, an absolute return fund (target return fund) tries to profit its investors.
Absolute return investing is one of the most rapidly expanding financial fields of the past few years. When looking for a way to guarantee constant returns for their clients, financial advisers and investment managers may recommend absolute return funds.
Due to their usage of numerous financial instruments spanning numerous asset classes, absolute return funds can be a useful complement to more conventional bond and stock funds.
Absolute return funds are subject to market risk, both to the value of their assets and the income they earn. In a long-short investment strategy, borrowed assets are sold at one price and then repurchased at a lower price.
Absolute return techniques might include investing in futures contracts, derivatives, currencies, and unusual securities. National and international equities and fixed-income securities may also be invested alongside commodities, loan notes, and real estate.
These funds do not track benchmark indices like typical bond and stock funds; instead, they hit targets through risk-mitigation, asset allocation, and diversification.
Absolute return funds can help investors diversify their portfolios due to their weaker correlation with traditional funds and dependency on underlying assets.
When looking to reduce their exposure to the ups and downs of the market, many investors consider investing in an absolute return fund. If you’re an investor who worries about losing money during market downturns or who has a large, imminent expense, like a house payment, these funds may be a good choice.
Now let’s look at the terms of VT Argonaut Absolute Return Fund.
VT Argonaut Absolute Return Fund: What You Need to Know
Features
The British pound accumulation share class A offered under VT Argonaut Absolute Return Fund was rolled out in February 2009, while the same share classes denominated in euros and US dollars were launched in July 2012 and December 2020, respectively.
The Argonaut Absolute Return Fund comprises 43 short holdings, which represent positions that yield a positive return when the corresponding stocks decline in value but result in a negative return if the stocks appreciate. The Fund also includes 35 long holdings which generate positive earnings as the value of the associated stocks increase but incur losses if the stock price falls.
This means that the fund invests in two distinct categories of stocks: those with high growth prospects for earnings (its long book), and those with the opposite, short book, where earnings could fall significantly.
The strategy is basically acquiring stocks that could succeed and offloading those that could fail.
The volatility of the fund is managed in part by adaptive market exposure management, which minimizes market risk and maximizes outperformance.
VT Argonaut Absolute Return Fund has 97.9 million pounds of assets under management.
Charges
Putting money into the fund won’t cost you anything at the outset. The ongoing charges for accumulation class shares A amount to 1.56% of the share price while the annual management charge for A class shares is 1.50%.
In addition, if annualized returns are higher than the predetermined hurdle rate of 5%, a 20% performance fee will be assessed. To ensure that investors reap the benefits of the fund’s good performance without incurring unnecessary costs, the performance fee is only levied if the fund’s price rises over the high water mark.
Investment Minimums
The minimum investment requirement for A Class Shares in this fund is 500 pounds, while the minimum amount for subsequent top-ups is 250 pounds for the same class.
Investors have the option to access certain investments under the fund via a regular savings scheme as well as Individual Savings Account (ISA) for those who wish to take advantage of tax-efficient investment opportunities.
Performance
VT Argonaut Absolute Return Fund reported a loss of 0.08% in July. Their long positions saw gains led by companies with strong earnings growth prospects. These increases, however, were more than offset by the continuation of a strong uptick in interest in riskier assets. Due to the short squeeze that this increase caused, the fund’s short positions suffered losses.
Who can invest?
Only qualified professional investors and acceptable counterparties will be accepted into this Fund. Individual investors whose vision for holding investments is less than five years may not benefit from this Fund. Individuals looking to invest their own money should get more information.
Pros and Cons of VT Argonaut Absolute Return Fund
Instead of investing solely in bonds or stocks, investors in absolute return funds can choose from a variety of securities from several asset classes.
This investment choice is helpful for diversification because it has shown a historically minimal connection with equity markets. If the portfolio has this quality, it may have a higher predicted return on risk. Its straightforward and transparent approach is highlighted by the fact that it only invests in individual equities (both long and short).
The strategy has a solid track record with positive returns being generated even in months when equity markets were in decline and downside volatility being effectively contained.
Currency fluctuations won’t hurt your returns too much because of the measures taken to convert foreign currency back into local currency share classes.
The Fund’s manager takes strategic long and short positions in the market, so the fund’s returns are anticipated to deviate from those of the overall stock markets. While the Fund may benefit during market downturns, it also runs the risk of underperforming during rallies. It usually does worse when market mood is optimistic.
Nevertheless, investing in such products doesn’t come cheap amid exorbitant charges. Also, an absolute return fund doesn’t necessarily mean better returns than the market as a whole. Always execute a thorough investigation and never invest or trade with money you can’t afford to lose because of the risk of loss caused by fluctuations in the market.
Bottom Line
Here’s the catch. Just like any other investment, there’s no assurance that you’ll earn a profit or hit your financial goals when investing in VT Argonaut Absolute Return Fund or the absolute return sector in general.
In fact, a four-year-old article from Morningstar said: “Absolute return funds have gone from being a darling of the investment world to one of the most unloved sectors in the past 18 months, as some of the most overhyped strategies failed to deliver during a volatile 2018.” The absolute returns industry recorded a 2.2 billion pound loss during that year, being unable to protect investors during the market crash.
Many of these funds have made the mistake of trying to be too sophisticated. Because of this, investors who aren’t fluent in these methods’ jargon have shied away, Morningstar added, citing Shore Financial Planning Director Ben Yearsley.
With this, the steep charges imposed by absolute return funds like Argonaut’s may not be worth it.
Morningstar did point out that certain absolute return funds did hedge against the collapse during the same period. So, this can still be an option for you. Just make sure to carefully discuss it with a financial advisor.
Pained by financial indecision?
Adam is an internationally recognised author on financial matters with over 830million answer views on Quora, a widely sold book on Amazon, and a contributor on Forbes.
