sub-fund of BNY Mellon Managed Funds II
In achieving a positive return over periods of time, the Absolute Insight Fund has provided investors some value. However, our overall assessment, based on performance and cost, is amber. The fund requires further action to meet our value criteria.
Relative to other comparable funds, we found the Absolute Insight Fund to feature higher charges than would be expected on certain share classes, particularly when considering net-of-fees performance.
This is why with respect to the cost criteria, we rated the fund as half red and half amber on comparable market rates (see glossary for FCA definitions). The amber portion of the cost score relates to the fees available on the fund’s institutional share classes. This type of investor makes up a large majority of holders in the fund. However, the higher fees on the share classes for retail investors we felt merited a red rating, due to their impact on the performance delivered.
With respect to the amber rating on performance, the fund has often achieved a positive return on a rolling one year basis. (Meaning a period of 12 months, no matter which day you start on).
See chart below for the fund's full investment objectives
For instance, in the Sp share class (a private share class housing the largest investor base of the fund) the fund has achieved this objective 66% of the time since 2013 (when the share class launched). For other share classes this percentage is progressively lower. For example, the 12-month rolling positive return has had a 59% success rate in the W share class (available to platforms), over the same time frame.
The Absolute Insight Fund has also regularly realised returns in line with (or exceeding) three month GBP LIBOR investment objective on a rolling 12-month basis, after fees. However, the fund did not achieve its secondary five year performance target, before fees (see fund objective) over the time frame ending 31 March 2020.
WHAT HAPPENED?
Absolute Insight Fund invests in five underlying absolute return funds, actively managed by Insight Investment. Each of these five funds invests in a different universe, for example one invests in bonds, another in equities and a third looks at currencies. Some are also differentiated by region, for example, one portfolio invests in emerging markets.
All of the funds employ different investment techniques to hedge risks and find opportunities, irrespective of whether the market is rising or falling. This attention to protection on the downside (attempting to prevent losses) as well as being diversified across asset classes, should mean that when markets fall capital is less at risk. For most of the five year period reviewed, markets were unexpectedly strong. That is, up until the three months ending 31 March 2020.
Some of the underlying funds in Absolute Insight were largely cautiously positioned through much of the rising market. Because of hedges in such portfolios, lagging a rising market can be typical.
CONCLUSIONS
We believe the philosophy and tools employed in the Absolute Insight Fund remain fit for purpose and continue to offer investors value, notwithstanding disappointing results in recent years. As the Fund’s approach results in returns with relatively low volatility and low correlation to other asset classes, we believe it can continue to be an effective diversifier. However, assessing the fund holistically, we believe the most recent annual OCF of 1.77% (to 31 March 2020) for our Ap retail share class, is too high for the performance achieved.
To address this, we will pursue a reduction in the management fee (annual management charge) on the A, Ap and Fp share classes, which should improve the net-of-fees performance. Our platform share class, W, remains a competitively-priced share class accessible to retail investors.
In addition, the investment team will review the fund’s underlying strategies to seek opportunities to strengthen the overall performance of the Fund.
Class S & Sp
Sterling-denominated shares available to:
1) institutional investors who meet the minimum initial investment level and the minimum holdings.
2) entities designated by the ACD as providing platform services and which are investing on behalf of underlying investors rather than on their own behalf. There are no specific minimum initial investment or holding requirements.
