Some 28 funds out of 120 in the IA Targeted Absolute Return sector lost investors more than 10% during the first quarter of 2020, according to Square Mile's Charles Hovenden, who warned "this is not in line with what absolute return investing sets out to do".
However, he pointed out that while just one-third of funds in the absolute return sector managed to lose less than 3% or achieve a positive total return, their performance so far has still been better than the torrid year they suffered in 2018 when only 17 funds avoided losses by the end of the year.
"Those who regularly monitor the performance of absolute return funds have become accustomed to them not meeting expectations and the first quarter of 2020 was no exception," he said.
"There are 120 funds within the IA Targeted Absolute Return sector and of these only 23 gave a positive return over that period. While this might seem disappointing, in 2018 when global equity indices fell around 7% only 16 funds managed to produce positive returns."
In Q1 2020, global markets plummeted by 20% as a result of the pandemic, which Hovenden said was "extreme" and that it "might have been unrealistic to expect absolute return funds to preserve their value".
However, with 17 funds avoiding losses altogether and a further 23 losing less than 3% - which he suggests would be "the threshold for acceptable losses" - it means that two-thirds have failed to sufficiently protect investors' capital.
"This is not in line with what absolute return investing sets out to do," Hovenden said.
"Investors in these strategies may be happy to forgo double-digit returns when markets are rallying strongly but will have an equal expectation that their capital will be preserved when they fall heavily."