NEW YORK — A line-up of absolute-return fund experts spoke Tuesday before a group of more than 100 advisors from large and small asset management firms to persuade them that now is a good time to invest in the relatively new and risk-focused asset class.
In a crowded and gilt-edged conference room in Manhattan's St. Regis Hotel, Putnam Investments Absolute Return Symposium speakers touting the funds included Putnam President and CEO Robert Reynolds (left); Gabriel Burstein, global head of portfolio solutions and investment research for Lipper Thomson Reuters; and Merl Baker, a quantitative researcher and principal with the Brightwork Partners consulting firm.
In comments that took on a dark edge as the experts talked about high risks and low rewards against the backdrop of a troubled and increasingly complex global economy, the speakers urged somewhat skeptical advisors to consider absolute-return funds as an alternative to target-date funds and to learn how to incorporate them into client portfolios.
“We’re so focused on the financial crisis and [the Federal Reserve’s program of] quantitative easing that we often miss the bigger picture,” said Burstein, a former hedge fund strategist with Goldman Sachs and author of "Macro Trading and Investment Strategies: Macroeconomic Arbitrage in Global Markets."
Looking at a New Paradigm
The bigger picture, Burstein said, is that advisors are typically 100% invested in long-only funds when they should be switching to “a new paradigm” that involves putting their money into absolute return funds that don’t focus so heavily on market direction.
Matching liabilities to financial goals such as 401(k) and 529 plans matters more than just producing superior returns, he said, adding that assets under
management in absolute return funds have proliferated over the last decade despite—or perhaps because of—the financial crisis of 2008.
“I never thought I’d be speaking at a mutual fund conference to 1940 Act advisors, but that’s a sign of our times,” Burstein said.
Results of a national Putnam-sponsored survey released Tuesday show that 76% of advisors are familiar with absolute return strategies, and 59% are “at least somewhat likely” to recommend absolute return funds to their clients, according to Brightwork’s Baker.
But the telephone survey of 256 advisors across all channels including RIAs found that many still consider absolute return to be an unknown strategy—a strategy whose very meaning still escapes an agreed-upon definition.
“Many of you consider absolute return to be a novelty,” Baker conceded to the symposium audience. “We see some real negatives in the minds of advisors.”
Among those negatives are high expense ratios, short retail track records and a complexity that is difficult to explain to clients.
Global Uncertainty a Good Argument for Absolute Value
And yet, said another symposium speaker, Cynthia Steer, head of beta research for Rogerscasey, advisors would themselves be well advised to consider the sort of inflation-linked, currency-hedged risk strategies that absolute return funds offer.
Likening the current economic environment to historical periods of extreme change such as Europe from 1918-23 or Africa in the 1870s, Steer said the geopolitics of global expansion are refashioning the world. This new reality means that advisors, investors and money managers need a wider toolkit to create income, pay pensions and keep the lights on at universities, she asserted.
“Everybody wants certainty, but the fact is that there will be no more certainty for a very long time,” Steer said. “Where do absolute return funds come in? Everywhere, because of all the change going on.”
Read about Putnam’s 2009 launch of four absolute return funds at AdvisorOne.com.