Fund Review: Standard Life GARS

In July the £18.6bn Standard Life Global Absolute Return Strategies fund was dealt a blow when major architect Euan Munro left to join Aviva Investors.

An event such as this would typically see a fund downgraded by analysts and fund selectors, however the appointment of Guy Sterns, who had been involved in the day-to-day running of the fund since April 2008, to head of multi-asset and macro investing, went some way to calming investors’ fears.

Andrew Ford, investment specialist for absolute returns at Standard Life Investments, says: “The very strong cross-team base of intellectual capital that underpins our multi-asset investment capabilities has been sustained by Guy’s appointment and gives us confidence that we will continue to produce strong fund performance.”

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The fund, according to Mr Ford, is set up to achieve a cash plus 5 per cent return (gross of fees) across rolling three-year periods and to generate a positive return every 12 months.

He adds: “The objective is unchanged since inception. The multi-asset investment team aims to identify opportunities resulting from global market inefficiencies.”

The fund invests in both equity and credit markets as a means of smoothing out volatility within the portfolio. The underlying strategies within the fund, Mr Ford says, should provide material returns in 2-5 years.

Recently, the fund has made a number of strategic changes. In June, for example, the team closed its position in global index-linked bonds due to having lower conviction that “break-even inflation levels will increase materially across a three-year horizon”, Mr Ford says.

He adds: “In July we implemented an equity relative value strategy, preferring Japanese equities to their Korean counterparts. This is based on our view that the Bank of Japan will continue to manage down the yen, giving Japanese exporters an advantage over their Korean counterparts.”

The team also closed the portfolio’s exposure to Russian equities and replaced this with a holding in “global oil major stocks”.

The past five years has seen the Standard Life Global Absolute Return Strategies fund more than double the returns of its IMA Targeted Absolute Return sector average, delivering 49.66 per cent compared with the sector average of 18.63 per cent.

The fund is benchmarked against 6-Month Libor, which returned 6.59 per cent in the five-year period to September 17, according to FE Analytics.

But year to date the fund has slipped behind its IMA sector peer group, in spite of a strong start, returning 3.36 per cent to September 17 compared with the sector’s 4.17 per cent return.

Mr Ford says: “Performance in 2013 began strongly with a 4 per cent gain in the first quarter of the year. The solid performance continued into the second quarter, before a correction driven by a broad market sell-off stemming from [Federal Reserve chairman Ben] Bernanke’s tapering comments.”

However, the fund did outperform its benchmark in the period, which delivered 0.44 per cent.

A look at the fund’s discrete-year performance in the past five years compared against its benchmark shows it only underperformed in 2008 – the year of the onslaught of the global financial crisis.