Using the Lipper Leaders scoring system to analyse the best-performing funds in the IA Target Absolute Return sector.
I’ve not been a fan of the Target Absolute Return (TAR) sector historically: it has tended to overpromise but underdeliver. TAR funds have the aim of achieving positive returns in any market conditions, but—an important caveat—returns are not guaranteed.
From 2013 to 2017, the sector attracted more money than any other, as investors were attracted by the hope of “positive returns in any market conditions”, with cash-plus 5% being a frequent selling point. For the cautious retail investors, that’s an attractive proposition. The promise initially held good, and assets flooded in. But then many of the big beasts in TAR failed to deliver, the tide turned, and the sector suffered persistent redemptions for years after.
The 5% commitment by individual funds has largely faded, like that meme of Homer Simpson backing into the hedge. The sector definition states TAR funds “may aim to achieve a return that is more demanding than a ‘greater than zero after fees objective’” in a period no longer than three years. Which is a lot less juicy: you may make more than nothing over the three-year period. But no guarantee. The Investment Association does provide a monthly figure for each fund in the sector, showing how many times a fund failed to provide net returns greater than zero for rolling 12-month periods.
That said, average annualised returns since 2006 are 4.41%—slightly lower than for the Mixed Investment 20-60% Shares sector, but also with a lower three-year volatility.
However, of late, there has been a sea change, and the sector has taken more than £5bn over the 12 months to the end of February. Why? There are a few possibilities. First, a lot of housekeeping has been done: those funds that disappointed have largely gone, and fund marketing looks more reasonable. Second, returns have improved, with the average 12-month and three-year returns being 9.92% and 22.19%, respectively. Third, with investors mindful of equity market risk, funds with built-in downside protection are attractive.
The sector’s funds offer a wide range of approaches, and should not be tarred with the same brush (sub-par pun intended). They use a range of strategies to achieve their objectives, according to Lipper analysis: from multi-asset and bond absolute return, to equity market neutral and equity long-short approaches, plus a whole lot more in between.
The strongest returns by classification over one year are Absolute Return GBP Medium (15%) and Absolute Return GBP High (14.8%), with Alternative Long/Short Equity UK also strong at 13.3%. By contrast, Absolute Return GBP Low (6.6%) and Absolute Return Bond GBP (5.9%) are noticeably weaker, as more defensive classifications trade lower upside for stability.
Over three years, the pattern shifts further in favour of equity-style strategies. Alternative Long/Short Equity Global averages 43.8%, Alternative Multi Strategies 36.9%, and Alternative Equity Market Neutral 32.1%, all well above the sector average. Absolute Return classifications are more mixed: GBP Medium is respectable at 27.4%, but GBP Low trails at 16.7%. Bond-oriented classifications are generally weaker over three years as well, as you would expect for a lower-risk asset class.
More growth-oriented or equity-linked alternative classes have tended to outperform, while lower-risk, bond-heavy and “low” absolute return classes have lagged. While this relationship is not perfect, it would be wise to do some research into how funds achieve their objectives before you invest, assuming they all do more or less the same thing: they clearly don’t.
The Jupiter Merian Global Equity Absolute Return fund has been the most successful asset gatherer over the past year. It aims “to deliver a return, net of fees, in excess of the US Effective Federal Funds Rate over rolling three-year periods”. It has achieved that, and had a very strong 2022, with a 20%-plus return, where bond-orientated funds will have likely struggled as yields blew out as inflation spiked. Lipper classifies this as an Alternative Equity Market Neutral strategy.
The strongest performer over three years is the YFS Argonaut Absolute Return fund, an Alternative Long/Short Equity strategy. While it has had two significantly negative years since its 2012 launch—in 2016 and 2018—annualised returns have been 9.86%. Both funds have a Lipper consistent return score of 5, the highest, with the Merian fund scoring higher on capital preservation.
Table 1: Top-Performing Target Absolute Return Over Three Years (with a minimum five-year history)
All data as of February 28, 2026; Calculations in GBP
Source: LSEG Lipper
This was first published on p17 of the April edition on Moneyfacts.
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The views expressed are the views of the author and not necessarily those of LSEG Lipper. This material is provided as market commentary and for educational purposes only and does not constitute investment research or advice. LSEG Lipper cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.
