We usecookiesfor a number of reasons, such as keeping FT Sites reliable and secure, personalising content and ads, providing social media features and to analyse how our Sites are used.

UK accused of misleading over no-deal Brexit ports disruption

Donald Trump says Iran appears responsible for Saudi Arabia attack

Boris Johnson to abide by any Supreme Court ruling to recall MPs

Anxiety for Europeans living in UK grows as Brexit date approaches

Attack on Saudi facility exposes world economys Achilles heel

WeWork postpones IPO after chilly response from investors

Fed injects billions of dollars into US market after funding squeeze

Donald Trump says Iran appears responsible for Saudi Arabia attack

WeWorks Adam Neumann admits to being humbled

Fossil fuel divestment has zero climate impact, says Bill Gates

SoftBank investors brace for Vision Fund writedowns

Fossil fuel divestment has zero climate impact, says Bill Gates

Jim Ratcliffes Ineos set to build new car in Wales

Advent and Cinven team up to bid for Thyssenkrupps lifts unit

PwC partners set for bumper pay boost despite audit criticism

London strengthens grip on currencies market, BIS survey shows

Investors pull gold from Hong Kong as tensions rise

Sanjeev Gupta struggles to sell high-yield bond deal

Oil rallies 10%; Saudi production may take months to recover as it happened

Brexit policy shows the Liberal Democrats are not serious about power

The Saudi oil crisis, volatile leaders and the risk of escalation

How to protect the UK constitution from Johnson and Cummings

Hong Kong protesters should be more realistic in their goals

When Donald Trump discovered the real Middle East

Business Book of the Year Award 2019 the shortlist

Big corporate mergers take a hidden toll on staff

How to choose the right university and degree course

Tedious and outdated sexist jokes are sadly not outliers

Look no further Burberry has everyone covered

Five books that explain the Hong Kong protests

Pixies Charles Thompson: I needed an outlet for my frustration

Jeffrey Epstein case probed in new podcast Broken

Investors have pulled billions of euros from Europes biggest absolute return funds this year as sentiment has turned against a strategy once heralded as the future of active asset management.

The controversial move by GAM, the Swiss asset manager, to prevent clientswithdrawing moneyfrom its absolute return bond funds this month has raised further questions of an investment proposition that was designed to limit risk for investors.

Many of these funds are simply a marketing gimmick to enable inherently low return funds to be sold with inherently high fees, said Alan Miller, chief investment officer of SCM Direct, an investment manager, and a campaigner for transparent charging.

We were astonished how many UK pension funds had been taken in by the marketing department promises of low volatility without mention of the accompanied low returns.However, it is in the retail space that we are the most flabbergasted.

Absolute return fundswere developed over the past decade and designed to replicate hedge fund strategies in order to provide steady returns for risk averse investors. But their high fees and, in many cases, disappointing performance have prompted investors to flee.

Three of Europes five biggest absolute return funds suffered outflows of more than 1bn in the first half of the year, with several large products losing more than a tenth of their assets.

Standard Life Aberdeen, the 678bn Scottish asset manager, last week said its flagship fund, Global Absolute Return Strategies (Gars) had suffered 5.9bn of outflows this year. That represented close to 12 per cent of the funds total assets under management.

Gars was once Europes biggest fund, but its performance has been hit in recent years. It is down 3.7 per cent this year, according to Morningstar, compared to a 3.6 per cent rise in the MSCI World Index of large and mid-cap companies globally. Gars returned just 2 per cent last year when the MSCI World Index jumped 22.4 per cent.

Several other European absolute return funds also suffered retail outflows this year, according to Morningstar. The 10.4bn Real Return fund from Newton, a BNY Mellon boutique, suffered redemptions totalling just over 10 per cent of its assets from individual investors.

DWS, formerly Deutsche Asset Management, saw its 6.3bn Concept Kaldemorgen fund lose 14.5 per cent to retail outflows. UK manager Aviva Investors 2.5bn Multi Strategy Target Income fund bled more than 13 per cent in the first half of the year from the same client group.

On August 2, GAM said it had raised so-called redemption gates on its ARBF strategies, preventing investors withdrawing their money. This was in response to redemption requests from investors holding more than 10 per cent of the assets in the funds. They were reacting to the news that GAM suspendedTim Haywood, a high profile fund manager, who oversaw the strategies.

Martin Gilbert, co-chief executive of SLA, conceded it had been a challenging time for absolute return funds, but denied GAMs redemption gate would dent the strategys reputation. I think its damaging for GAM, he said. It shows the value of having a good franchise and risk controls.

He added: I feel very strongly that [absolute return funds] have a very, very important part to play in the market.

Keith Skeoch, his co-chief executive, said: Gars was never going to do well in a year…of synchronised economic growth. In difficult markets, you reach for absolute return funds.

Aviva said that given its funds long-term focus, there would be periods where it would underperform. On a long-term basis, however, we are confident we will be able to achieve the funds targets with lower volatility than global equities, the company added.

Newton said: Though our strategy has not been immune to the more jaded view of diversified growth funds, we believe it continues to be relevant particularly given where we are in the business cycle and the current market backdrop.

DWS said that flows and performance had stabilised in the Concept Kaldemorgen fund in June.

Not all absolute return funds have suffered this year. The Adagio fund by H20, the Natixis-owned UK boutique, has more than doubled to 4.6bn. The fund has returned 4.8 per cent this year. BlackRocks 9.8bn BSF Fixed Income Strategies fund had inflows representing 14 per cent of assets up to the end of June.

Get alerts on Fund management when a new story is published

Markets data delayed by at least 15 minutes. THE FINANCIAL TIMES LTD 2019.

and Financial Times are trademarks of The Financial Times Ltd.

The Financial Times and its journalism are subject to a self-regulation regime under theFT Editorial Code of Practice.Close drawer menuFinancial Times