Standard Life Investments’ flagship Global Absolute Return Strategies (Gars) fund has bought into global mining stocks as it eyes an upturn in global growth.
The fund, the largest in the IMA fund universe, has put on a position where it buys global mining stocks and takes a short position in the Swiss equity index.
The short position is designed to make money if the Swiss market falls.
Andy Ford, product specialist on the Gars team, said that Swiss stocks had undergone a re-rating, with investors buying into the index to get access to its defensive stocks and their “strong growth in stable earnings”.
But he said the index may suffer “if there is a pick up in growth and less of an interest in expensive safe haven assets”.
The other half of the new Gars trade is to buy into a basket of mining stocks, a sector that Mr Ford described as “deep value”.
Mr Ford said it had been well-established that the ‘commodity super-cycle’ – in which mining firms benefited from continuously rising prices due to higher demand – is over.
But he said the mining firms had recognised this and had brought in new management teams, which have focused on cost cutting and increased discipline, which Mr Ford said should see the sector outperform the broader equity market.
The managers of the absolute return fund have also established a position that they hope will take advantage of their view that inflation in developed economies is likely to stay low for some time.
Mr Ford said the basis of the position was that the team “expects inflationary pressures to ease”, in part due to the recent strength of sterling and the fact that “political posturing” on energy prices is likely to keep those prices “contained” in the near future.
During February, the team closed one of its relative value positions, in which it had bought US technology stocks and sold Taiwanese stocks.
The position was established to take advantage of the discount on which US tech stocks were trading relative to their peers in Taiwan.
However, Mr Ford said that valuation gap had reduced so the managers had closed the position.
But he said that the team was still positive on the outlook for US technology stocks and “continue to expect strong earnings from the technology sector”.
So to keep the fund’s exposure to the tech story high, Mr Ford said the managers had doubled the size of another relative value position, which was to buy into US technology stocks and cover that with a short position on US smaller companies.
The idea of the relative value trade is that the managers expect technology stocks to outperform the wider small cap market, but the short position means that if the overall market falls, the money gained by shorting smaller companies should compensate for falling share prices in technology stocks.
