Fund rating agencies have raised new questions over the size and structure of multi-asset absolute return teams following new criticisms leveled at Invesco Perpetual.
The firm’s £11bn Global Targeted Returns (GTR) fund has been downgraded by Morningstar on the suggestion that the management team was failing to interact effectively with colleagues and was too small to generate sufficient ideas on its own.
Scrutiny of the multi-asset absolute return space has increased following the underperformance of Standard Life Investments’ (SLI) Gars product in 2016. FE pulled its support for Gars last autumn following a review of its team and risk management.
GTR and Aviva Investors’ £5bn Aims product both operate in similar ways to Gars, having been launched by senior members of the original SLI team. But ratings agencies’ complaints over the products appear at odds with one another.
Morningstar senior analyst Randal Goldsmith said a large part of the decision to downgrade the GTR fund from bronze to neutral was the managers’ interaction with fellow Invesco and Invesco Perpetual colleagues.
“We take the view that [the GTR managers] need to use the other teams, as the multi-asset team responsible for the fund is a lot smaller than at SLI and a little bit smaller than Aviva Investors.
“The resources working directly on the product being more compact, they do need help from other people within the group to generate ideas.”
Not all agree that bigger is better. Charles Younes, research manager at FE, said the team structure and size at all three firms had led him to opt for an alternative JPMorgan Asset Management product.
FE once included Gars on its approved list of funds, but removed it towards the end of 2016. Mr Younes said he had concerns over risk management, the swelling size of the team and the fact that the fund had become too large.
“I believe [a small team] is much more efficient to run a flexible global macro thematic approach. This is why we did not go for other Gars-like products such as Aviva Investors’ Aims,” Mr Younes explained.
He also pointed to the fact that FE believes that Gars’ larger team is causing communication issues – in contrast to Morningstar’s view regarding the problems of the smaller Invesco team.
Gill Hutchison, research director at The Adviser Centre, acknowledged the difficulty in designing such a team structure.
“Relatively few fund management companies are in a position to run products that require well-organised collaboration between investment professionals covering different asset classes. SLI should take credit for leading the way in this respect,” Ms Hutchison said.
She also defended concerns over performance, suggesting the current market environment was not ideal for such strategies.
Yet Mr Goldsmith said Morningstar’s concerns around resource had been amplified by the GTR fund’s recent performance – the product having unperformed its Libor three-month GBP plus 5 per cent benchmark over three years.
“It might be nitpicking,” Mr Goldsmith said, but added: “Scoring it strictly it hasn’t done what it said on the tin. I have a huge amount of respect for the team members, but we have elements of doubts in Invesco as a whole and [GTR’s] relationship with other teams.
“So it isn’t our highest conviction pick until those things are ironed out.”
Invesco declined to comment.
In numbers
70: Number of people working in Standard Life Investments' multi-asset team
12: Size of Invesco Perpetual's multi-asset team on its GTR fund
