Gilts, equities and cash have all beaten the highly popular Standard Life Investments Global Absolute Return Strategies fund over the past year, according to research by FE Trustnet, with the fund’s two main rival portfolios also delivering higher returns and lower volatility.
Standard Life Investments Global Absolute Return Strategies (known as GARS) is behind rival absolute return funds the £5bn Invesco Perpetual Global Targeted Returns (also known as GTR) and the £1.3bn Aviva Investors Multi Strategy Target Return fund over the past year, six months, three months and one month periods. GARS has also lost the most of the three in 2016 so far.
Of course an important caveat to mention now is that all three funds seek a cash plus 5 per cent return over a three years and GARS has broadly done this while the other two portfolios are yet to pass their three year anniversary.
According to FE Analytics, GTR has returned 0.49 per cent, the Aviva fund is down 0.85 per cent per cent while GARS has lost 5.01 per cent.
Over the same period, the IA Targeted Absolute Return sector average was down 0.64 per cent and the FTSE World index is down 1.51 per cent. The Barclays Sterling Gilts index has rallied 3.93 per cent.
Performance of funds, sector and index over 1yr
Source: FE Analytics
In term of other key measures such as volatility and maximum drawdown, GARS is also behind it rivals as the table below shows and has seen its worst maximum drawdown since the global financial crisis.
Source: FE Analytics
GARS lost 8.52 per cent between April 2015 and February 2016. It lost 12.58 per cent between launch in May 2008 and March 2009.
Of the recent performance of GARS, Charles Stanley Direct’s Rob Morgan said: “GARS has experienced something of a downturn recently; and to put things simply - quite hard to do with GARs - a number of strategies that worked well in the fourth quarter of 2015 unwound at the start of this year when we had the significant downturn. Market exposure to Europe was damaging, for instance. We will continue to monitor how it fares now markets have stabilised.”
GARS, GTR and the Aviva fund all have similar risk profiles, aiming to outperform cash plus 5 per cent over rolling three-year periods with less than half the volatility of equities and it should be noted that GARS has achieved this over the past three years in terms of volatility but it is less than 5 percentage points ahead of its benchmark over this period.
However, longer term the fund has a strong long-term track record. Since launch in May 2008, the fund has posted a 48.66 per cent total return and outperformed the FTSE All Share in the process, although it has lagged the gain of the Barclays Sterling Gilts index.
Performance of fund vs indices since launch
Source: FE Analytics
Its volatility is more less than a third of the FTSE All Share and lower than the Barclays Sterling Gilts index also.
Co-manager of the PFS Hawksmoor Vanbrugh and PFS Hawksmoor Distribution funds Ben Conway says GARS’ “poor performance” over the past year hasn’t escaped his notice.
“The GARS team have always had to face criticism that the fund is no more than a complicated low beta way to access equity markets. Its longer-term performance history does bear this out to an extent and we have never viewed the fund as a “pure” absolute return fund,” he said.
“For that, we’d need to be convinced it offered genuine very low correlation to all risk assets (bonds, equities etc.) as well as being able to deliver positive returns through different market cycles.”
“Looking at the fund’s correlation with risk assets over seven years, it is around 0.5-0.6, which is actually not that high. However, the absolute return funds we invest in tend to have negative correlations with risk assets. This makes them genuine risk diversifiers in portfolios – which GARS is not.”
He says the main disappointment for investors GARS should be the size of its drawdown from mid-November to mid-February and the lack of a subsequent recovery.
“This sort of bad period of performance can happen to any fund, and it would be foolish to write-off what has been by any measure a very successful fund. Indeed, no fund manager or fund management team has yet, as far as I’m aware, found the secret to permanently consistent strong risk-adjusted performance so periods of poor performance for any fund are inevitable."
“Since we don’t view the fund as offering genuine “absolute returns”, we must then simply make a judgement on whether we believe future risk-adjusted performance has been permanently compromised. “
“We haven’t decided yet but a snap judgement on the past year’s performance alone would seem harsh and their investor communications have always been excellent in my view. My main issue with the fund has always been its name.”
“Whenever you put “absolute return” in the title, you better make sure you can deliver exactly that!”
Steve Lennon, investment manager at Parmenion, says it is not the first period during which the performance of GARS has been “unspectacular”.
However, he says it is worth remembering that GARS targets returns of LIBOR plus 5 per cent with volatility of less than half of global equities over rolling three years periods.
“The fund has achieved these targets over the vast majority of periods since launch. I would also highlight that the attribution analysis shows a roughly equal number of positively and negatively contributing ideas which provides some comfort that the fund continues to be suitably diverse without single trades dominating returns.”
“Bearing in mind that all actively managed funds will inevitably suffer from periods of relative underperformance, it might be a good idea to diversify by manager in this space, as with any other asset class. Both Invesco Perpetual and Aviva offer funds which are run on a similar basis but demonstrate reasonably low correlations with GARS.”
The Invesco and Aviva funds were both launched by former members of the GARS team, and use very similar processes to achieve their stated goals, being diversified portfolios of long-only, directional and market neutral positions, aiming for low correlation to equities and bonds.
The Aviva Investors Multi Strategy Target Return fund is headed by Peter Fitzgerald and Dan James. It was launched on 1 July 2014 after Euan Munro moved from his job as Standard Life Investments’ multi-asset chief and a senior member of the GARS portfolio team.
He is now chief executive of Aviva Investors, but not directly named as a manager on the Aviva Investors Multi Strategy Target Return fund.
Since launch it beaten GARS and GTR in terms of total return, volatility and maximum drawdown.
Performance of fund and index since 1 July 2014
Source: FE Analytics
The biggest recipient of inflows in the past 12 months in the entire Investment Association universe - £3.7bn - the Invesco Perpetual Global Targeted Returns is headed David Millar, alongside Dave Jubb and Richard Batty.
The fund has beaten GARS since it launched in September 2013 in terms of total return and in terms of maximum drawdown and volatility.
Performance of fund and index since September 2013
Source: FE Analytics
A spokesperson for the GARS team said: “In our multi asset suite of products we take longer-term market views and combine them in such a way that all our portfolios are resilient to unexpected market shocks. GARS has proved to be a consistent way of meeting investors’ needs for good returns with low levels of risk.
"Against a volatile macro backdrop over the last year, GARS actually behaved as we would have expected it to do. It fell far less than equity markets from peak to trough, as portfolio diversifiers helped to cushion the blow from equity, credit and other risk-on type positions. We are tasked with seeking to generate substantial returns on a 3 year rolling time horizon."
"This involves taking the right amount of risk overall, in multiple strategies that we believe, in the long-term can generate good returns and offer diversity along the way, so that if the unexpected happens (like in January and early February ) , the portfolio behaves in an acceptable manner and preserves as much of our investors’ capital as possible."
