Standard Life Global Absolute Return Strategies
(GARS) recently overtook Neil Woodford’s Invesco Perpetual High Income
portfolio as the largest UK domiciled fund in the IMA unit trust and OEIC universe.
The fund built its reputation as a principal part of Standard Life’s staff pension scheme, and its success led to its launch into the retail space in May 2008.
It takes on a multi-strategy approach, drawing on a pool of between 25 and 35 specialised areas to deliver an absolute return. The GARS team is macro driven, selecting strategies based on a three year view. The portfolio currently has 30 strategies, ranging anywhere from a long position in Russian equities to an arbitrage between the US large and small cap markets.
So far so good; Standard Life GARS has delivered positive returns every calendar year since launch, and is a top-three performer over that time, with returns of 33.8 per cent.
However, there is another top-performing Absolute Return fund which adopts a multi-strategy approach, and which has a superior risk-adjusted return since May 2008 – the Insight Absolute Insight
Performance of funds since May 2008
Source: FE Analytics
According to FE data, since the launch of GARS, the Insight Absolute Insight fund has returned 24.95 per cent. While this is short of its rival, the Insight portfolio has delivered this with significantly less volatility and a lower max drawdown. It performed much more consistently during and after the Lehman crash in 2008, and was also less affected by last summer’s sell-off.
As a result of its lower volatility, Insight Absolute Insight has a significantly higher Sharpe ratio than GARS [0.67 to 0.40]. The Share ratio measures a fund's return relative to a notional risk-free investment – in this case, cash. The difference in returns is then divided by the fund's volatility.
Risk measures of funds since May 2008
Source: FE Analytics
|| Ann. volatility (%)
|| Max. drawdown (%)
|| Sharpe ratio
| Insight Absolute Insight
| Standard Life GARS
Insight Absolute Insight is headed up by FE Alpha Manager Reza Vishkai
and Sonja Uys
. They hold five in-house funds, or strategies as they prefer to call them; Insight Absolute UK Equity Market Neutral, Insight Absolute Currency, Insight Absolute Credit, Insight Absolute Emerging Market Debt and Insight Absolute Return Equity.
The first four tend to have a similar weighting in the portfolio – currently between 21-25 per cent – with the remaining in the Absolute Return Equity fund.
Unlike the 25-35 strategies held by GARS, investors can invest directly into the underlying holdings of the Insight Absolute Insight fund, and their own holdings are open to the public domain. All five carry a minimum investment of £3,000.
Speaking exclusively to FE Trustnet, Uys (pictured) says this transparency gives the fund an edge over many of their rivals which also use a multi-strategy approach.
“The fund is very easy to understand, which is important to us,” she said. “We don’t try to be too clever – the weighting of the underlying holdings seldom change, and when they do, we’re very open about this and explain to our clients exactly why.”
The five funds are all actively managed by Insight managers, but Uys and Vishkai have an element of influence over what direction the funds take.
“We meet very often, and review what is going on in each portfolio,” she explained. “The managers have a clear mandate and are very much in control, but we will bring up certain issues if we see fit.”
“For example, we discussed the possibility of limiting single positions in the portfolios, and this was accepted by all of the managers.”
“However, the everyday running of the funds is left to them.”
Uys says the fettered nature of the fund of funds is a big advantage with regard to the total expense ratio (TER), and stresses that the 10 per cent annualised performance fee is charged only on the performance of Insight Absolute Insight , rather than the underlying holdings.
The fund has a minimum investment of £5,000 and a TER of 1.26 per cent.
Standard Life GARS only lists its strategies, and does not publish each underlying holding. However, Rowan Garrow, a fixed income investment specialist on the GARS team, doesn’t see this as a disadvantage.
“We don’t think this would give a very clear picture of what we’re doing,” she said. “The way we display what we’re doing is by showing our clients what strategies we hold, which we believe is more helpful.”
“We publish a quarterly factsheet and explain what the strategies are and why we hold them, and we’re happy to give out additional information on request.”
Charles Younes, an analyst on the FE Research team, says he’s a big fan of the GARS fund, and holds it within his own pension plan. However, he believes a lot of investors who hold the fund have little idea what they’re holding.
“If you don’t like or don’t understand hedge funds, you may not want to hold this fund, as that’s essentially what it is,” he said.