Absolute return vehicles are coming under scrutiny from the Financial Conduct Authority (FCA) as part of its work looking at whether asset managers are offering investors value for money.
The FCA is currently completing a major review of the asset management industry, and the Financial Times reports this will include the absolute return sector, which has come under fire for recent poor performance.
Its report was due to be published in summer 2016 but this has been delayed due to Brexit and will now be released in Q4, with a final report set to be published in early 2017.
The study will look at whether competition is working effectively among asset managers to enable investors to get value for money. If it finds failings, the regulator said it may intervene with firm-specific remedies or enforcement action.
Absolute return funds are particular targets as two-thirds of vehicles in this sector have suffered poor performance during 2016, despite the IA Targeted Absolute Return sector attracting significant inflows.
A survey from ratings agency Fitch conducted in March found absolute return funds' performance was the worst since the 2008 financial crisis.
For example, Standard Life Investments' £26bn Global Absolute Return Strategies fund recently suffered its worst quarterly performance since 2008 when it lost 3.5%.
Despite the poor performance, investors have been flocking to the sector this year amidst Brexit volatility, with the peer group taking inflows of £221m during July alone.
The Targeted Absolute Return sector has returned 0.2% over one year to 13 August and 2.8% over the past six months, according to FE. However, the worst funds have lost as much as 20% over the last year.
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