Skip to the content

Aviva’s upstart absolute return fund beating GARS in its first year

02 July 2015

The Aviva Multi-Strategy Target Return fund has passed its first birthday, but how does it compare to its mammoth rival?

By Daniel Lanyon,

Reporter, FE Trustnet

The newcomer Aviva Multi-Strategy Target Return fund has beaten its rival Standard Life Investments Global Absolute Return Strategies (GARS) fund since it launched a year ago by producing a higher total return with lower volatility, according to research by FE Trustnet.

The £725m fund is headed by Peter Fitzgerald and Dan James. It was launched on 1 July 2014 after Euan Munro moved from being Standard Life Investments’ multi-asset chief and a senior member of the £25bn GARS fund’s portfolio team to become the chief executive of Aviva Investors.

According to FE Analytics, the Aviva fund has returned 7.75 per cent since launch while GARS gained 6.73 per cent. Over the same period, the IA Targeted Absolute Return sector average returned 3.64 per cent.

Performance of funds, sector and index over 1yr


 Source: FE Analytics

Aviva Multi-Strategy Target Return’s team aims to grow and protect investors’ capital, as well as manage volatility, through a diversified, multi-strategy approach.

Over the medium term, the fund aims to achieve a gross return of the UK base rate plus 5 per cent over rolling three-year periods.

Its volatility over its first year was lower than GARS’, standing at 4.7 per cent versus 5.23 per cent from Standard Life’s fund. The FTSE All Share had more than double the volatility of both funds at 13.74 per cent.

The portfolio’s ideas are drawn from across asset classes, sectors, currencies, interest rates, inflation and volatility, which are then blended to work well in both rising and falling markets. Its ideas fall into one of three segments, namely: market returns; opportunistic returns; or, risk-reducing returns. 

Gill Hutchison, head of investment research at City Financial, said: “We see increasing demand for multi-asset, risk diversified products and Aviva Investors Multi-Strategy Target Return is a welcome addition to this limited cohort of funds in the IA Targeted Absolute Return sector. 


“CEO Euan Munro’s experience, as one of the architects of Standard Life Investments’ Global Absolute Return Strategies fund, is central to the design of the fund which incorporates return-seeking elements combined with risk-reducing elements.”

The fund has also performed better in terms of risk adjusted returns compared to GARS, as measured by the Sharpe ratio, scoring 0.93 versus GARS’ 0.61.

The behemoth GARS fund also has a higher maximum drawdown – which measures the most an investor would have lost if they had bought and sold at the worst possible times – than the newcomer.

This occurred during the September/October correction in UK equities when markets sold off over worries about the economic recovery in Europe, geo-political tensions in Iraq and Ukraine, the Scottish independence referendum and the threat of Ebola.

In the last three months of the year the FTSE All Share fell just shy of 10 per cent from peak to trough, although both funds fell by far less

Performance of funds and index 1 Sept 2014 to 1 Jan 2015



Source: FE Analytics  

Standard Life’s GARS thwarted investors with losses of more than 6 per cent the last time markets had sold off in 2013’s taper tantrum but last year it did a much better job.

Markets have also been through a weak period over the last three months as the Greek crisis has compounded negative sentiment.


Both funds have stayed ahead of the FTSE All Share’s falls, with the Aviva fund just ahead - albeit marginally.

Performance of funds, sector and index since 27 April 2015



Source: FE Analytics

 

Meera Hearnden, senior investment manager at Parmenion, has been looking at both funds recently and, while both are interesting, she is standing by a longer term position and preference for GARS.

“It has a longer track record and has been stress tested in a variety of market conditions. The Aviva fund has a similar objective of delivering cash plus 5 per cent, but it has yet to be tested in down markets. It also has a smaller team than the GARS team, even though the team is made up of ex SLI GARS individuals.”

“While there are similar strategies in the underlying portfolios, how they diverge and add value over the longer term remains to be seen. We will be keeping an eye on the Aviva fund, but for now it doesn’t meet our screening based on three-year performance and volatility, and therefore it is not a fund we would currently buy.”

Laith Khalaf, senior analyst at Hargreaves Lansdown, says the Aviva Multi-Strategy Target Return fund is clearly doing well in its first year but that an important feature of the absolute return sector is that generally funds are judged on a three-year view. This is the period most try to deliver their ‘total return’.

“I would observe that both use sophisticated techniques to deliver returns which are independent of market movements, though it is still early days for the Aviva fund, while GARS has a long track record of doing what it says on the tin,” he said.

“It should go without saying but one shouldn’t put all their eggs in one basket: they make good diversifiers in a portfolio containing more traditional assets.”

In terms of cost, the Aviva fund undercuts GARS. It has a clean OCF of 0.85 per cent compared to 0.9 per cent.

Editor's Picks

Loading...

Videos from BNY Mellon Investment Management

Loading...

Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.