Just one absolute return fund has beaten cash every year for 10 years, and three funds have failed to beat 10-year cash returns, according to analysis by AJ Bell.
Over the past year two-thirds of funds have delivered a loss, the research showed.
Yet over the past decade cash has returned just 1.45% - far below the level of inflation. But even at that low bar three funds have failed to beat cash: Insight Absolute Insight Currency, GAM Star Global Rates and Jupiter Absolute Return. The latter two have delivered a loss over that time, of -8.1% and -4.1% respectively, while the Insight fund just sneaked in a gain - of 0.6%.
Many investors will be turning to absolute return funds at the moment [...] But the returns of the sector over the past decade show it's a potential minefield for investors to navigate, with a massive spread in returns (and losses) among the funds."
Laura Suter, personal finance analyst at investment platform AJ Bell, commented: "Many investors will be turning to absolute return funds at the moment, either to diversify their portfolio or to introduce a fund focused on more stable returns, with the aim of getting their investments recession-proof. But the returns of the sector over the past decade show it's a potential minefield for investors to navigate, with a massive spread in returns (and losses) among the funds."
She added: "A total of 38 funds in the sector have a track record going back a decade, but only one has managed to beat cash returns and so deliver a positive return in each and every year during that period - Janus Henderson UK Absolute Return. Three funds have done it in all but one year, when they delivered a loss, namely Blackrock European Absolute Alpha, Veritas Global Real Return and Premier Multi-Asset Absolute Return."
The past year was the toughest of the past decade for the funds, with 26 funds of the 38 delivering a loss - that's more than two-thirds of the sector that has lost money for investors, a lot of which will be over the past three months alone.
"However, investors shouldn't just focus on the funds that have made a positive return over certain periods," said Suter. "For example, the Argonaut Absolute Return has delivered a 40% return for investors over the past year, but the previous year it handed investors a loss of 15.5%, while in 2016/17 it delivered a 19% loss. This isn't a fund for investors who want a stable return that minimises loss of capital."
"The data highlights how much investors need to dig into the sector to see which fund works for them. The difficulty when comparing absolute return funds is that they don't have a consistent benchmark between them, so while one might target Bank of England base rate plus 3% over a rolling five year period, another might just aim to not lose money every 12 months.
"This means investors need to first assess whether they are comfortable with the stated benchmark and then whether they are happy with the past returns of the fund, and particularly how it has navigated down markets," Suter concluded.