An analyst has outlined possible reasons why the performance of Standard Life Investments’ £27bn Global Absolute Return fund has deteriorated over the past 18 months, pointing to the "strategic bets" which could have dented returns.
Since reaching a peak in April last year, the Gars fund has since seen a reversal of its performance, losing 3.2 per cent year-to-date, against the Investment Association Absolute Return sector return of 1.7 per cent over the same period.
A report from research provider MPI stated: “With many investors concerned about Gars’ recent performance, we wanted to shed some light on the factors that might be contributing to the complex global ‘go anywhere’ fund’s performance results.”
According to the study, the fund’s exposure to the fixed income markets was scaled back in the middle of last year, meaning it missed out on the latest leg of the bond market rally, while the fund’s short duration exposure meant it suffered after the Fed’s rate rise was pushed forward.
Meanwhile, long exposure to European equities has detracted from returns, while long exposures to UK equities and US corporate bonds have contributed positively, the report read.
Michael Markov, co-founder and chairman of MPI, said the managers’ decision to cut down this fixed income exposure has set the strategy apart from those of its peers in the Morningstar global alternative multi-strategy category, and cited this as a main reason for the fund’s underperformance.
Going forward, the Gars fund appears to be positioned to profit from further Fed rate rises and a strengthening of the US dollar, Mr Markov said, adding: “We observed that the fund’s returns exhibit significant strategic factor bets.
“If for example, the US dollar strengthens and US interest rates rise, the fund may be able to recover some of the losses this year.”
Mr Markov also pointed to long-standing concerns the Gars fund had a capacity issue when it hit £40bn assets under management in August last year, but said his analysis could “not confirm or refute” these concerns.
A spokesman for Standard Life said: “In the last year Gars behaved as we would expect in terms of risk, providing investors with low levels of volatility and drawdown relative to risk assets, but returns were disappointing due to our long-term investment views being markedly different from the short-term factors that have frequently driven markets.
“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.”
In a note which went out to clients this month, Standard Life said: “Given the range of our views which we seek to reflect in Gars we would not expect all positions to perform well simultaneously. However, every position is expected to deliver a positive return over our time horizon.”