Target return funds - An alternative to deposits

Target Return Funds differ from traditional funds as they have an explicit mission statement and take a more 'hands-on' approach to trying to deliver positive returns for investors. The Fund Managers would boldly say they can deliver these returns in all market conditions. Since the Global Financial crash in 2008, Target Return Funds have become very popular due to two main reasons: (I) many Investors were  very unhappy with what happened to their money in the crash and (II) falling Deposit rates have forced the Deposit Investor to look further afield for return, particularly as they also lose 41% of any gain to the Taxman.

The most popular Target Return Fund in Ireland is Standard Life's Global Absolute Return Fund ('GARS') which has taken in over €2.6 Billion (in Ireland) since it's launch in 2008. This Fund targets a return of cash plus 5% gross of charges on a rolling 3 year basis. In terms of risk / volatility it is ranked '3' on the ESMA scale which measures volatility / risk over a five year period with '1' being safest / least volatile (Deposit Funds for example) and '7' being the most aggressive / volatile (Some Equity Funds).  This ESMA scale is a very useful tool to assess appropriate risk when investing and it is where we would start the investment discussion with clients. To the 31st October Standard Life GARS has delivered a Gross 6% p.a. over the past five years so it has lived up to it's targeted return to date. To give you an idea of the popularity of this Fund, there is over Stg. £20 Billion invested in this Fund. It can be accessed with Lump Sum Investments (Minimum €10k), Regular Premium Savings or Pension Monies.

The second most popular Target return Fund in the Irish Market is New Ireland's BNY Mellon Global Real Return Fund which targets cash + 4% p.a. over a rolling 5 year period gross of charges. The current Fund size is €546 million and it is ranked a ;4' on the ESMA Scale.  New Ireland also offer the BNY Mellon Absolute Return Bond Fund targeting cash +3% p.a. over a rolling 3 year period gross of charges. It's a smaller fund with only €48 million invested to date and again is a '4' on the ESMA scale. Aviva also recently launched their competitor to GARS which is called the Aviva Irl Multi-Strategy Target Return Fund and it aims for 5% above ECB base rate (before charges) on a rolling 3 year basis. Again it is a '4' on the ESMA scale.

These Funds are not necessarily the best option for Investors but undoubtedly they are an option worth considering particularly for the more cautious investor willing to take on a limited level of risk / volatility. Which one is best? It depends on what the Investor wants, what assets and monies they have elsewhere and what is the best fit for them and their circumstances. 

Investments can fall as well as rise in value. Capital is not guaranteed in any of these Funds. However with Deposit rates so low there are no Investments available any more which can offer a capital guarantee and a potential return of any note. Generally Investors want a good return and no risk but they don't co-exist so it's a question of understanding the risk and making sure it is not too much for you and your circumstances. Any good Financial Advisor should be able to match you with appropriate Investment options for your circumstances. And of course, you should never put all your eggs in the one basket - whether that be Deposit, Property, or particular Funds. Diversification is always sensible.  

If you would like further information on the above, or to discuss your Investment, Saving or Pension requirements in more detail feel free to contact us using the form below, emailing joe@blackthorncapital.ie or by calling (01) 293 7200.

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Wealth ManagementJoe O'Regan