Caution urged on Standard Life fund

Caution urged on Standard Life fund

One of the world’s largest fund ratings agencies has issued a note urging caution over Standard Life Investment’s Global Asset Return Strategies fund due to its size.

The fund, which has been popular with advisers since its launch seven years ago, has grown to nearly £44bn in size, causing Morningstar to question whether the managers can maintain the fund’s investment strategy.

Randal Goldsmith, senior manager research analyst at Morningstar, said: “Standard Life said it would review the growth in assets under management when the strategy hit the £40bn asset level, which it is has now done.”

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He added that, with this “stretched capacity, we are already seeing changes to the fund and in particular have seen a reduction in the fund’s ability to produce alpha from stock selection.

“While the fund and its management team are in good shape, investors should keep a watchful eye on the level of inflows into the strategy and for signs that the managers are struggling to identify new ideas that they can invest in meaningfully.”

According to its latest factsheet, the fund, launched 29 January 2008, was valued at more than £26bn. However, according to the team that runs the fund, this figure does not include all share classes, the Sicav version, or funds distributed by third parties such as US fund manager John Hancock Investments. Their inclusion puts the total size of the fund at £44bn.

According to data from FE, the fund is the biggest in the 77-strong IA Targeted Absolute Return Sector; the average for the whole sector is £854m and is also one of the largest 10 funds across the entire UK Unit Trust/Oeic universe.

Christopher Nichols, investment director, multi-asset investing, for Standard Life Investments, said: “We remain confident of our ability to manage the fund’s growth given its use of highly liquid investment strategies of a global nature, breadth and scale.

“We regularly monitor the portfolio and its structure and the results of our studies have consistently showed that it has available capacity well beyond the level it is today.”

Adrian Lowcock, head of investing at Axa Wealth, said: “Given the complex nature of this fund it is also difficult to tell whether capacity is impacting on performance and fund structure or whether it is the team’s investments decisions and reactions to global events that are driving it.”

Adviser View:

Scott Gallacher, chartered financial planner at Leicestershire-based Ifa Rowley Turton, said “We are cautious about Standard Life’s Global Asset Return Strategies fund, and so do not use it. Our main concern is its size, which has been a perpetual problem for fund managers.

“We also have some concerns about the transparency of how it is achieving its returns. In addition, we found we did not really understand just how it works. We prefer the Invesco Perpetual Global Targeted Return fund, which poached some of the Standard Life team – another reason to be circumspect about the fund.”