Having enjoyed the market tailwinds during the second quarter, some 79% of funds in the Absolute Return database are positive for the year through July 31. That’s the good news. The bad news? Despite these gains, nearly 57% of funds are below their high-water marks.
And they’ve still got a ways to go. To reach their high-water marks-after which point they can resume earning incentive fees-these funds will have to gain a further 13.78% (median return) or 29.53% (average return) from August 1 through yearend. That average drops to a still-substantial 19.59% when funds that aren’t likely to make it back - 31 funds whose losses exceed 50% and one fund that is down nearly 96% - are excluded. To put that in perspective, the Absolute Return Composite Index, even with this year’s stunning gains in many strategies, is only up 8.08% this year through July 31. U.S. equity funds, the largest group in the database, are up 8.96%.
Some 31.94% of the funds that are in positive territory this year also had gains in 2008. A small but unfortunate minority (5.31%) of all funds are in the opposite position: down in 2008 and once again this year.
These funds will need to produce an average gain of 36% before the year is over in order to break above their high-water marks.
In 2008, about 58% of all funds in the Absolute Return database lost money. Of these, 9.53% remain in negative territory (these are the funds that need a 36% bump to return to par). The rest, 90.47% have produced positive performance this year. But only 29.56% of these recovering funds are are above their high-water marks, meaning only 26.78% of 2008’s losers are above water. JF
