One of the better-known funds in in the IA Targeted Return sector, the Aviva Investors Multi Strategy Target Return fund, more commonly referred to as AIMS, has struggled with outflows in recent years.
Peter Fitzgerald, portfolio manager of the £3.7bn AIMS fund, explains how the new direction taken after restructuring was halted by the Covid-19 pandemic.
Launched in July 2014, the absolute return strategy’s aim to deliver long-term capital growth is balanced with preserving investor capital in tougher times.
Having outperformed its benchmark – Bank of England Base Rate +5% – for much of the first two years of its life, the fund started to underperform prompting a restructure in mid-2018.
Performance of fund since launch to June 2018
Source: FE Analytics
The manager said the culture has changed since 2018 by bringing all the macro traders together, with Fitzgerald becoming chief investment officer for the combined multi-asset & macro investment team.
The former multi asset head, became chief investment officer of the combined multi-asset and macro strategy in June of that year.
The restructure focused the strategy on three key sections: market returns, incorporating long equities and credit, high yield, and emerging market debt; opportunistic investments, more shorter-term plays in long-term thematic trends; and, risk-reducing returns, investments providing positive returns in times of stress.
Overarching those sections was a framework that informed its risk allocation by judging the level of risk in the market environment.
“Even if you are optimistic on the world, you have to have the humility to recognise the future is uncertain,” he explained. “Even if you’re bullish you must maintain exposure to your risk reducing assets.”
Fitzgerald added: “We needed to go deeper than traditional macroeconomics to understand what’s happening in sectors, markets and individual companies.
“That’s not traditionally an area of comfort for macro investors, we look at interest rates, inflation and growth to infer where to allocate capital.”
And that’s been difficult over the years, particularly given its twin objective of delivering returns and protecting capital.
“Where we’ve struggled, and that’s prior to 2018, has been capturing more of the market upside in recovery,” he said. “Yes, we want to make money, but we have to preserve capital to make sure investors don’t experience the trauma of a 30 per cent drawdown, even if it recovers quickly afterwards.”
And while that restructure had been starting to pay off, the Covid-19 pandemic put another obstacle in the way.
Fitzgerald said markets have witnessed both a meltdown and a melt up in a short space of time this year, which means the balancing act of capital growth and preservation has become even trickier.
“Contrary to perception, it’s sometimes more difficult to manage a portfolio in a melt-up than in a meltdown,” he said. “Both have occurred in a five-month period which is extraordinary.”
The changing nature of the pandemic and national lockdowns meant that every month since the March sell-off, has required leaning on certain sections of the strategy more than others depending on what was required.
Fitzgerald said: “One of the key challenges on a portfolio like AIMS, is that you need to look at the correlation between how different parts of the portfolio are interacting with each other.
“And one of the key challenges we faced for a short period of time in March was the risk reducing strategies didn’t actually work for a week and as equity markets were falling, we had positions in 30-year Treasuries which traditionally would’ve protected you.
“During that period because of market dysfunction and mass liquidations taking place you saw both fall off at the same time.
The AIMS manager said this requires an individual judgment call on whether the correlation is permanently broken or whether it’s just a short-term trend.
Nevertheless, Fitzgerald said after the restructure he is confident that the fund is now “on the right track”.
He highlighted the double-digit returns for 2019 as a starting point for reinstating that confidence, but the timing of the pandemic has been unfortunate for a sense of momentum.
Fitzgerald finished: “It would be difficult for absolute return strategies to regain some of their historical popularity, if markets continue to make all-time highs and people remain highly confident in equity markets.”
Performance of fund vs sector & benchmark YTD
Source: FE Analytics
So far this year, the fund has made a loss of 0.8 per cent, compared with a 3.51 per cent gain for the benchmark.
Since launch, the AIMS fund has made a total return of 10.74 per cent (to 2 September) compared with a 39.2 per cent gain for the benchmark.
Performance of fund vs sector & benchmark since launch
Source: FE Analytics
The fund has an ongoing charges figure (OCF) of 0.85 per cent.