Long ReadFeb 15 2023

Where did it go wrong for Gars?

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Where did it go wrong for Gars?
The GARS fund is being reviewed after a period of underperformance. (Andre Furtado/Pexels)
ByDavid Thorpe

The announcement this month that Aymeric Forest has departed Abrdn and that the Global Absolute Returns Strategy fund is being reviewed brings to a head the sense of crisis that has long overshadowed what was once the largest fund in the UK adviser market.

The fund was £20bn in 2018, and as recently as March 2020 was more than £4bn before falling to the £1.2bn in size it was on the day FTAdviser revealed the news of the review. 

Euan Munro, currently chief executive of Newton Investment Management and in a previous life, the creator of the Gars at Standard Life, is a no-nonsense character.

The grandson of a Scottish coal miner, Munro told FTAdviser that he created the strategy after the dotcom bust of 2001-03 when he saw equity markets endure sustained falls, and wanted to create a product that could perform well when equities were performing poorly. 

Initially performance was strong, with the fund returning more than twice the sector average from launch until 2012.

But if relative simplicity was central to Munro’s vision for the fund, it quickly drifted away from such a path, according to one wealth manager.

He says: “The search for the elusive magic beta product has been ongoing since I started in markets in the 1980s. I have sat through numerous mind-numbing presentations on why the latest black box, algorithm or snake oil would lead to the promised land.

"Gars was just another manifestation of the search, which was in the right place at the right time in terms of asset gathering. It actually peaked at £27bn. Size was not the main reason it failed to produce performance – the instruments they deal in are very liquid."

"Basically all of these strategies rely on predictable trends, mean reversion and movements within certain standard deviations. The problem over the past 15 years is that trends have broken down, for example, bonds going up at the same time as equities, there has been no mean reversion and there have been some big moves.

"Hence virtually all of them have performed badly, particularly after their high costs. They also never admit it but they rely on reasonably high levels of volatility since they write a lot of options/futures etc and this has also been scarce in this period.

"I would like to think this is the end of them but I can guarantee they will reappear in some other guise at some point in the future.”

Munro departed Standard Life in 2013 to create a Gars-type strategy at Aviva Investors. His exit had been preceeded by that of David Millar, who had created a similar product for Invesco.

Numbers crunched

When performance was strong, Standard Life heavily marketed Gars, laying on workshops to help financial advisers to understand the intricacies of the product, and marketing the strategy abroad. FTAdviser understands significant inflows came from Japan around this time. 

Gars is essentially now a global macro fund; those are very hard to get right, and not everyone is good at that.James Sullivan, Tyndall Investment Management

Performance has been weaker in recent years: the stated aim of the fund is to deliver a return of cash plus 5 per cent on a rolling three-year basis. Over the past three years to February 9, the fund lost 11 per cent.