Our Liquid Real Assets Index provides a useful benchmark for this approach.
Targeted absolute return funds
TAR funds, also known as 'all-weather' funds aim to provide positive rolling returns, at a premium to bank interest rates in all market regimes, with constrained risk.
By aiming to provide a total return premium over bonds, with bond-like volatility, all-weather style TAR funds can be used as an alternative to bonds within a portfolio.
However, performance outcomes vary both from a return, risk and value-for-money perspective, so selecting the right TAR fund requires careful consideration. Analysing the absolute return fund universe relative to an equal weight or equal risk multi-asset benchmark helps enable comparison.
In the face of rising rates and inflation, it makes sense to focus carefully on a portfolio’s allocation to bonds and understand the implications of both duration risk and inflation risk.
With inflation likely to remain an issue for the medium term, advisers looking for alternatives to bonds should carefully consider overall portfolio risk budget, and as the monetary regime tightens, keep a careful eye on liquidity profile.
Henry Cobbe is head of research at Elston Consulting
