Absolute ReturnSep 30 2016

Investors ‘too quick’ to pull out of SLI Gars fund

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Investors ‘too quick’ to pull out of SLI Gars fund

These comments come after a pension scheme decided to divest its £170.6m holding in the Gars fund, of which £122m was moved across into a rival absolute return offering run by Aviva.

Mark Dampier, head of research at Hargreaves Lansdown, said often trustees are a bit too quick to make these decisions after a short period of poor performance.

He said the main problem is people don’t understand the strategy fully, so when it goes through a difficult period, they don’t have the conviction to hold it.

The research boss said Gars is a difficult fund to analyse because it does not use a conventional investment strategy, meaning it’s really hard to fully understand why it’s had such a poor time and how it will get better.

“To me, it’s seems the investors have made an emotional decision; trustees can be too impatient.

Mr Dampier also said there is always a danger that people will do the same, adding it’s up to Standard Life to “come out fighting”.

“They’ve got so much money in the fund that I find it hard to believe they won’t pick themselves up off the floor again.” 

Andrew Wilson, head of investments at wealth manager Towry, echoed Mr Dampier’s points, saying: “I highly doubt that most of the investors in the Gars product have any idea how it actually works, or indeed what risks and rewards they could expect in the future.” 

While the fund’s performance has been less attractive recently, he said it is difficult to know how to attribute that between the loss of key team members, the sheer size of assets under management, or just bad luck.

He also said short-term struggles are “inevitable”, and any investor or fund will be faced with difficulty from time to time.

“There is no guarantee the Aviva fund will perform better, going forward, and the reported switch may actually mark an inflexion point where Gars goes on to outperform."  

Looking at the performance of the fund over the past 18 months, I can see why the investors decided to make the switch  Darius McDermott

Mr Wilson said: “In any event, that would fit with the observed history of mandates being changed at unfortunate times, with the new manager often going on to underperform the terminated programme.  

“So, this might actually be a good contrary indicator for Gars investors.”

Darius McDermott, managing director of Chelsea Financial Services, said he can see why the investors decided to make the switch when looking at the performance of the fund over the past 12 to 18 months.

He said this move doesn’t look good for the Gars fund, and is on the back of a difficult year performance-wise where Aviva have outperformed them.

However, he said: “I don’t think it’s a disaster, particularly when you look at the total asset value of the Gars fund, when you’re running £26bn, a divestment of £170m is not a killer."

Mr McDermott pointed out that, when it launched, Gars was the only type of fund of its type retail investors could gain access to.

“I think it took a lot of assets and has done well over the long-term, but what you might find now is more asset managers launch similar funds in the retail space, and you might find people choosing to diversify across these other strategies. 

“I think that is already a trend which is well underway.”

He also pointed out, there are a lot of people who were involved in Gars at the start who are now running competing products. 

“People want low risk and steady return, and the product which can offer that most consistently will probably take the most money.”