It is experiencing huge inflows, having received more than £4bn in new money over the last 12 months alone.
It is effectively a hedge fund for the retail investor, utilising dozens of individual strategies to produce low-risk returns in all market conditions.
The fund is highly praised by the FE Research team for its low correlation to the sectors that form a large part of most investors’ portfolios.
Correlation of fund to indices
| Name | FTSE All Share |
FTSE British Government All Stocks |
MSCI EMERGING MARKETS |
|---|---|---|---|
| Stan Life Inv Global Absolute Return Strategies | 0.31% |
0.22% | 0.38% |
Source: FE Analytics
Data from FE Analytics shows that the fund has been less volatile than the FTSE All Share and the FTSE British Government All Stocks index of Government bonds over the past five years, while returning 39.52 per cent – more than equities.
Performance of fund vs indices over 5yrs
Source: FE Analytics
Here Andy Ford, absolute return investment specialist and GARS team-member, outlines some of the fund's current successful – and not so successful – strategies.
Dollar strength
The team has been positioned to take advantage of dollar strength since 2008. Currently one of their positions bets on it doing well against the Japanese yen.
A radical new monetary approach has seen the Japanese stock market soar and the currency crash, and Ford says this is playing into the fund’s position.
"The main issue we see is that if inflation kicks on then we could see a spike in Japan government bond yields which could be serious for the financing of this policy," he warned.
The team is also positioned for the currency to appreciate versus the euro, and results from this strategy have been more mixed.
"January was a poor month for our long-dollar/short-euro position, but this changed in February, it becoming the second best-performing strategy," Ford added.
Italian voters' rejection of Mario Monti and his EU-sponsored technocratic government raised doubts over whether Draghi’s OMT policy was a true backstop for the country’s problems, Ford explains, while the Cyprus crisis has also hit the currency.
The fund has also benefited from a long US dollar/short Canadian dollar position. Canada has seen some poor economic data releases recently, Ford explains.
"We think the housing market is over-heating and we are concerned about private sector leverage in general."
"The level of gearing of the Canadian consumer hasn’t seen the deleveraging of the US consumer."
"There could be some issues being stored up in the Canadian banking sector with regard to bad debts."
The team remains positive on the US economy relative to the rest of the world’s major markets.
"We are of the view that the US will be the first major economy to raise rates. We are seeing the housing market contributing to rising wealth levels – 9 per cent up in 2012 on a year earlier."
"We think there is also pent-up demand in the domestic sector."
Russia and China for growth
Standard Life GARS has a long-standing position in Russian equity, which Ford says has both growth and diversification benefits.
"We have had mixed performance," he admitted. "It’s a high-Beta market and performance has benefited from a bullish strategy."
"The market is trading on half the global emerging market average but the return on equity is 3 per cent higher than the global average."
"It is largely a geared play on the oil price, as the country is the second-largest producer after Saudi Arabia."
"If you look at the index, it is largely made up of oil and gas companies and the banks that lend to them."
"We like it because it’s not the Middle East, and if Iran blocks the Straits of Hormuz it won’t be affected."
"We are seeing that Russia is gearing up for a push into shale as well. It has a sophisticated oil industry and potentially huge resources. It could be a long-term tailwind for the Russian market."
The position in Chinese equities is newer, Ford explains.
"It is looking to benefit from the strong economic growth we are expecting from China"
"In the medium-term it’s all about the risk spectrum. Investors have been pushed from government bonds into investment grade credit, which we think is looking a bit toppy right now, and then into high yield, which we still like."
"Now what you’re seeing is investors move into dividend-paying stocks and we think the next thing will be stocks with capital growth potential as well, such as Chinese and Russian equity."
Indian strength, Singapore dollar weakness
"This position encapsulates the different impacts of global trade," Ford said.
"In India what we are seeing is the economy gradually being opened up. We think it’s going to be positive for the rupee."
"The Singapore dollar side of the position is benefiting from the decline in global trade. It’s largely a trading hub and the number of ships going through its port is declining. In February it was at its lowest for 10 months."
"As China moves away from low-cost labour export-focused we would expect intra-Asian trade to decline, which would be negative for Singapore."
Mexico for manufacturing
"We are big fans of Mexico," Ford said, explaining that the country’s labour costs are coming down dramatically relative to China's, and will become twice as cheap over the coming decade.
This will mean that companies increasingly look to the country as a site for manufacturing, especially if they are selling into the US.
The ideas that have not worked out
One of the positions in the fund that has not done so well was an attempt to take advantage of what the team saw as the better likely performance for holders of European bank debt rather than bank equity. However, the team is sticking with the strategy.
"We expect credit holders rather than equity holders to do better. Regulatory changes will see the banks have lower growth and lower return on equity, which is not good for equity holders but good for credit holders."
"In January we were short bank equity, which performed quite well."
The team has also discontinued a position that aimed to take advantage of stock market turmoil by trading the VIX index of market volatility.
Ford says that the team will look at bringing it back, and is of the view that markets will become more volatile again, making this strategy more effective in future.