Skip to content
  • For financial professionals in Sweden Change
  • Contact Us
    • Subscriptions
      • Select Preferences
      • Log in
search bar
Janus Henderson Investors
  • About us
        • About Janus Henderson Investors

        • Our people

        • Environmental, Social and Governance (ESG)

        • Diversity, Equity and Inclusion

        • Who we are
        • Our investment capabilities
        • Connecting with our clients
        • We provide access to some of the industry’s most talented and innovative thinkers.

          Meet our teams
        • Find out how environmental, social and governance (ESG) considerations are embedded within our organization and investment principles.

          Learn more
        • See how diversity, equity & inclusion are valued and supported at Janus Henderson.


          Learn more
        • About us
        • Our people
        • Diversity, Equity and Inclusion
  • Products
        • Filter by asset class

        • Equities
        • Fixed income
        • Multi-Asset
        • Alternatives
        • View all products
        • View

        • Prices and performance
        • Resources

        • What we offer
        • How to invest
        • Regulatory information

        • MiFID II
        • Notices
        • Brexit FAQs
        • Fund charges
  • Insights
        • Invested in connecting

        • Explore our insights

        • Webcasts

        • We connect our clients with insights and knowledge that empower them to make better investment and business decisions.

        • Subscribe to Insights
        • Global Perspectives
          Recurring global market views and research
        • View all insights
        • Investment Viewpoints
          Updates and outlooks from our investment teams.
        • Quick Views
          Short-form, timely insights and reactions to market events.
        • Our dedicated webcast channel featuring the latest live and on-demand presentations and Q&A sessions from our investment professionals.

          Watch now

  • Documents
{{banner.link_text}}
For financial professionals in Sweden
February 2022
Investment Viewpoints Environmental Social Governance (ESG)

Not too long, not too short – the argument for absolute return

  • Luke Newman
    Luke Newman
    Portfolio Manager

Luke Newman, Co-Manager on Janus Henderson’s Absolute Return strategy, argues that absolute return can play a role in improving diversification for investors concerned about equity/bond risk in the post-pandemic era.

 Key takeaways:

  • Valuations on both equities and bonds have been strained, inviting questions as to what alternative strategies investors can use to manage risk across their portfolios.
  • Highly accommodative government and central bank policies have pushed the relationship between bonds and equities into uncertain territory.
  • The Janus Henderson Absolute Return Fund has been approved for classification as an Article 8 product, reflecting efforts to embed environmental and social considerations into the investment process.

Market inefficiencies will always exist due to imperfect information and unpredictable investor behaviour. Investors can misjudge the prospects for a company; markets can over-react to negative news. This can create opportunities for those investment strategies capable of generating positive returns, whatever the prevailing market conditions.

Equity long/short ‘absolute return’ strategies focus on exploiting market inefficiencies to generate absolute returns (ie. a return greater than zero) in various market environments.

The long and short of it

Classic ‘long’ investing involves putting your money into assets (whether that be stocks, bonds or property) in the hopes/expectation that they can rise in value over time. ‘Short’ investing is a form of investment that can profit if the underlying asset falls in value. The most common technique is to borrow an asset (for a fee), and then sell it, with the intention of buying it back for less than you sold it for and returning it to the original owner by the agreed date. If correct, the strategy can make money from assets that are depreciating. But they can lose money if the underlying asset increases in value.

More flexible strategies are also able to actively adjust the proportion of long or short investments held, which can improve their adaptability. Holding a relatively large proportion of long investments can make a strategy more sensitive to prevailing market conditions, indicating optimism about the prospects for stock markets, whereas being net short (holding a greater proportion of shorts than longs), can indicate the expectation that markets might struggle, or that share prices are too high. Net exposure can be adjusted at an overall portfolio level, by sector, region, or even at a stock level, allowing investors to target their exposure in line with their views.

But... why absolute return?

Traditional asset allocation strategies built around equities and bonds have been a useful tool for investors over the past two decades (Exhibit 1) – and this has continued throughout most of the pandemic era. Allocations to bonds helped to mitigate the worst of the market falls seen during that initial period of shock and uncertainty in March 2020. Meanwhile, stock markets rebounded sharply in response to large-scale intervention from central banks and governments to support economies and protect jobs.

Exhibit 1: Traditional asset allocation has worked well for the past two decades

article_chart_not too long3

Source: Refinitiv Datastream, 31 December 2002 to 31 January 2022. Rebased to 100 at start date. Past performance does not predict future returns.
Note: 'Global equities' is the MSCI World Total Return Index (in US dollars). 'Global bonds' is the JPM GBI Global All Traded Index. ‘50% equity/50% bond’ represents a simple 50/50 strategy equally allocated to equities and government bonds.

November 2020 was a significant moment, with markets responding positively to news of Pfizer’s vaccine breakthrough, optimism that continued throughout most of 2021, despite the uncertainty created by emergent strains with different transmissibility and potency. This has left both equities and bonds currently looking arguably expensive. This, in turn, is leading investors to seek alternative strategies investors that can help them better manage risk across their portfolios.

Could traditional diversification strategies fail to protect clients in the next downturn?

History shows us that diversification is not something that should be taken for granted. Governments and central banks have pursued highly accommodative policies, which has pushed the relationship between bonds and equities into uncertain territory. For the world’s major central banks, the purchase of massive quantities of government bonds (and other assets), aimed at increasing economic activity, has led to significant increases in the size of their balance sheets (Exhibit 2).

Exhibit 2: Balance sheet growth of major central banks

article_chart_not too long2

Source: Refinitiv Datastream, Fathom Consulting, Central bank balance sheets, total assets, US dollars (trillions), 1 January 2007 to 3 January 2022.

While this largesse helped to finance governments during the pandemic, it has also helped to inflate asset prices. Central banks now face the high-stakes task of finding some way to unwind their stimulus measures (‘tapering’), without precipitating a new crisis. The US Federal Reserve has been the first major central bank to act, dialling back its bond purchases from $120 billion per month in November 2021, with the intention of ending them by March 2022. Elsewhere, in late 2021 the Bank of England surprised markets by increasing interest rates for the first time since 2018. Markets have reacted negatively to this surprisingly hawkish stance, with both equities and bonds[1] losing ground in January 2022.

Products that meet the needs for modern investors

Demand continues to grow for long/short equity strategies as the correlation between stocks continues to fall from the peak we saw during the early days of the pandemic. The past few months has also seen a rotation from growth to value, supported by rising interest rates and higher-than-expected inflationary pressures. This is likely to be a more favourable environment for absolute return strategies where stock selection is based on company fundamentals, as is the case with our Janus Henderson Absolute Return Fund.

Finally, we are also celebrating confirmation that the Janus Henderson Absolute Return Fund has been approved for classification as an Article 8 fund, effective from 25th February 2022. This was positive recognition of our efforts to embed environmental and social considerations in our investment process.  In accordance with the Sustainable Finance Disclosure Regulation (SFDR), Article 8 labelled portfolios promote, among other characteristics, environmental and social characteristics.

 

[1] Source: Janus Henderson Investors, 31 December 2021 to 31 January 2022. ‘Equities’ is the MSCI World Total Return Index (in US dollars). ‘Bonds’ is the JPM GBI Global All Traded Index. Past performance does not predict future returns.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

 

Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

 

The information in this article does not qualify as an investment recommendation.

 

Marketing Communication.

 

Glossary

 

 

 

Important information

Please read the following important information regarding funds related to this article.

Absolute Return Fund
The Janus Henderson Fund (the “Fund”) is a Luxembourg SICAV incorporated on 26 September 2000, managed by Henderson Management S.A. Henderson Management SA may decide to terminate the marketing arrangements of this Collective Investment Scheme in accordance with the appropriate regulation. This is a marketing communication. Please refer to the prospectus of the UCITS and to the KIID before making any final investment decisions.
    Specific risks
  • Shares/Units can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • If a Fund has a high exposure to a particular country or geographical region it carries a higher level of risk than a Fund which is more broadly diversified.
  • The Fund may use derivatives towards the aim of achieving its investment objective. This can result in 'leverage', which can magnify an investment outcome and gains or losses to the Fund may be greater than the cost of the derivative. Derivatives also introduce other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • If the Fund holds assets in currencies other than the base currency of the Fund or you invest in a share/unit class of a different currency to the Fund (unless 'hedged'), the value of your investment may be impacted by changes in exchange rates.
  • When the Fund, or a hedged share/unit class, seeks to mitigate exchange rate movements of a currency relative to the base currency, the hedging strategy itself may create a positive or negative impact to the value of the Fund due to differences in short-term interest rates between the currencies.
  • Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
  • The Fund involves a high level of buying and selling activity and as such will incur a higher level of transaction costs than a fund that trades less frequently. These transaction costs are in addition to the Fund's Ongoing Charges.
  • Some or all of the ongoing charges may be taken from capital, which may erode capital or reduce potential for capital growth.
  • The Fund could lose money if a counterparty with which the Fund trades becomes unwilling or unable to meet its obligations, or as a result of failure or delay in operational processes or the failure of a third party provider.

Back to Insights

Related Insights

Absolute Return: maintain flexibility in 2022
January 2022  
Investment Viewpoints Annual Outlook Volatility

Absolute Return: maintain flexibility in 2022

Watch Now

Absolute return: is it time for a new path?
June 2021  
Quick Views Coronavirus

Absolute return: is it time for a new path?

Read More

Absolute return investing: take care not to trip on the road to normality
December 2021  
Investment Viewpoints

Absolute return investing: take care not to trip on the road to normality

5 min read

Featured products

  • Absolute Return Fund

Subscribe for relevant insights delivered straight to your inbox

I want to subscribe
  • Sweden
  • Adviser
  • Investor
  • Institutional
  • Investor relations
  • Careers
  • Contact us
  • Legal information
  • Cookie policy
  • Fraud and security information
  • LinkedIn

Unless otherwise stated all data is sourced from Janus Henderson Investors.

Marketing Communication. This website is intended solely for the use of professionals, defined as Eligible Counterparties or Professional Clients, and is not for general public distribution. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

Issued in Europe by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided by Janus Henderson Investors International Limited (reg no. 3594615), Janus Henderson Investors UK Limited (reg. no. 906355), Janus Henderson Fund Management UK Limited (reg. no. 2678531), Henderson Equity Partners Limited (reg. no.2606646), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Henderson Management S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier).

We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Janus Henderson, Knowledge Shared and Knowledge Labs are trademarks of Janus Henderson Group plc or one of its subsidiaries. © Janus Henderson Group plc.

Close Notification
You are now leaving janushenderson.com

You are now leaving our site and entering a website not operated by or affiliated with Janus Henderson Investors. While we aim to point you to useful external websites, we cannot be responsible for their content, opinions, advice or accuracy, even if you utilise the services on the linked site to invest in our products.

The protection of your personal information on other websites is not governed by Janus Henderson Investors privacy policy and Janus Henderson Investors cannot be responsible for the privacy policies utilised on such third party sites, nor for the implementation of such policies by those third parties.

You should review the Terms and Conditions of third party websites and contact the operators of such sites if you have any queries.

You are now leaving Janus Henderson's website and will be redirected to the website of the Securities and Exchange Commission (the "SEC"). Money market funds are required to provide the SEC with a monthly electronic filing of more detailed portfolio holdings information on Form N-MFP.

Janus Henderson is not responsible for the content, accuracy or timeliness and does not make any warranties, express or implied, with regard to the information obtained from other websites. This link should not be construed as either a recommendation or offer to by or sell any securities.

TOP

Region

Country

Language

What type of investor are you?