Head of FE Research Rob Gleeson has taken a 20 per cent position in Standard Life Global Absolute Return Strategies in his pension, highlighting the fund as an ideal option for investors waiting for a buying opportunity in riskier assets. Gleeson (pictured) says that the equity market has had “no direction” for some time now, delivering flat returns for the last nine months or so. The FTSE has flirted with all-time highs on a number of occasions of late, only to correct by around 5 per cent and grind higher once again.
In such an environment, he says that it’s key to find fund managers who can add value regardless of market direction, and points to Guy Stern and his team as the best in the business to do that.
“My pension is of course a long-term investment, but I’ve invested around 20 per cent in GARS recently as there is no trend in the market. It’s been very flat,” he said.
“It seems like the market is waiting for something to happen, which is always a worrying thing. When markets have no direction, as is the case now, you want a manager who can add alpha in a flat market, and that’s exactly what GARS was designed to do.”
Performance of fund and indices since Nov 2013
Source: FE Analytics
“Until the market has a clearer trend, or there is a significant market correction which creates a clear buying opportunity, I’m happy waiting in a fund that has a proven record in delivering annualised returns of 6 per cent-plus.”
GARS was launched into the UK retail market in May 2008. It has returned 3.54 per cent since the beginning of November 2013, beating the FTSE All Share with significantly less volatility.
It has returned 50.01 per cent over six years. This equates to annualised returns of more than 7 per cent over the period.
Performance of fund and indices over 6yrs
Source: FE Analytics
“I have got a lot of high-beta positions in my pension, including James Thomson’s Rathbone Global Opps fund, Newton Emerging Income and Henderson European Selected Opps,” Gleeson continued.
“I’ve also got Old Mutual Global Strategic Bond, which has had a tough time of late. The manager [Stewart Cowley] has got a negative duration position, which is a high-conviction play on rising interest rates.”
“I haven’t sold out of my positions in these funds, but I’ve been switching my monthly contributions into GARS rather than these.”
“I’d much rather be invested in something like GARS rather than cash, as it has the potential to give me inflation-busting returns with relatively low volatility.”
Equilibrium’s Mike Deverell (pictured) told FE Trustnet in a recent interview that he has sold out of GARS due to concerns over size and high-profile manager exits.
However, Gleeson says that he sees the likes of Invesco Perpetual Global Targeted Returns and Aviva Multi Strategy Target Return as “unnecessary risks”, as neither has amassed a one-year track record.
“Why go for something that is trying to be GARS, when you can still invest in the real thing?” he said.
“GARS has changed the industry. It’s a fund that doesn’t care what way the market is going, and unlike most absolute return funds, has a proven track record in rising and falling markets.”
Gleeson says that fund size isn’t an issue for him at this point as Guy Stern and his team run up to 30 strategies within the mandate and can invest in any asset class or region.
Deverell and a number of other industry commentators have expressed concern about the exit of David Millar to Invesco and Euan Munro to Aviva; however, Gleeson and his team think that Standard Life has adequate resources to steady the ship.
“This portfolio offers investors a method of benefiting from the complexities of hedge fund-style absolute return strategies; however, it is more conventional at heart than a hedge fund and seeks to derive much of its returns through dynamic asset allocation, much like a large pension fund might do,” he said.
“Despite the fund’s rapid growth in size, the management team has successfully maintained the same standards of returns.”
“The fund has suffered a number of departures recently, most notably Munro who headed up the team and was instrumental in launching the fund. We have confidence in Guy Stern as his replacement, who has been running the fund for some time.”
“We will be watching for any changes in style and approach, though,” he added.
Among GARS’ biggest rivals is Insight Absolute Insight, headed up by Sonja Uys and Reza Vishkai. Gleeson is a fan of the fund, seeing it as a good alternative to cash. However, given his risk appetite and time horizon, he says he prefers GARS, which is prepared to take on more risk.
“The fund has been very good at grinding out returns of 2 or 3 per cent a year, but it’s not going to give you much more than that,” he said.
Performance of funds and index over 3yrs
Source: FE Analytics
“It also has a performance fee, which I see as a negative. It means it’s even less likely to return more than 3 per cent, as it charges 10 per cent on anything it returns in excess of Libor.”
