Standard Life Investments’ (SLI) flagship £26bn Global Absolute Return Strategies (Gars) fund has been dealt a fresh ratings agency blow after FE removed the product from its ‘Approved’ buy list for the first time.
Though it continues to meet long-term targets, Gars has struggled in 2016, losing 3.5 per cent year to date, with its managers blaming poor returns on the irrationality and undue pessimism of other investors.
But FE’s analysts said they suspected the fund had failed to learn the lessons of its underperformance during the 2013 ‘taper tantrum’, when equity and bond prices fell in tandem.
Charles Younes, research manager at FE, said the SLI team had assured the ratings agency in the aftermath of that event it would work on its risk management to avoid strong drawdowns.
“We spoke to SLI in 2013 and the firm said it would amend its risk management techniques,” Mr Younes said. “When the dollar was strong and treasuries and gilt yields were under pressure the strategy struggled.
“But it was the same this year, with a drawdown that has lasted for months...I am not sure the company has fixed its process.
“Its strong risk management process was why we included SLI in the first place, but we have lost our conviction.”
The decision is the latest in a series of unfavourable judgements made by ratings agencies on the product. Morningstar said last summer it believed Gars’ size was starting to affect performance, while one newer firm, Fundhouse, issued critical reports both this year and last.
Another major agency, Thomson Reuters Lipper, was unavailable for comment when Investment Adviser asked for its view. But Square Mile head of research Victoria Hasler said she still had confidence in the SLI team’s risk modelling, diversification strategy and long-term record.
An SLI spokesperson said: “In the past year, Gars behaved as we would expect in terms of risk, providing investors with low levels of volatility and drawdown relative to risk assets.
“Periods like this have occurred before in the history of Gars and by sticking to our process and philosophy, while adapting to changing underlying drivers, we are confident the fund will resume its upward path.”
FE’s Approved list, which launched in 2012 and includes 89 active funds, has replaced Gars with the £662m JPM Global Macro Opportunities fund.
“It is a lot more flexible than the big Gars machine so it fixes a lot of the issues we have highlighted, although at cash plus 7 per cent it is slightly more aggressive,” Mr Younes added.
The agency’s biannual rebalancing also saw it remove two other high-profile products: M&G Optimal Income and Jupiter Strategic Bond.
Mr Younes said Ariel Bezalel’s Jupiter fund was too similar to another product, and that Richard Woolnough’s M&G fund was too expensive.
FE continues to include the cheaper M&G Strategic Corporate Bond fund on its list.
