Investors should consider the Invesco Perpetual Global Targeted Returns fund a sound potential pairing with the Standard Life Global Absolute Return Strategies fund, according to Invesco Perpetual’s David Millar, who is the current manager of the former and the former manager of the latter.
The behemoth Standard Life Global Absolute Return Strategies or ‘GARS’ fund is a highly popular vehicle and when viewed across its various mandates is the largest in the Investment Association universe at around £40bn of assets under management.
It was set up by Millar (pictured), alongside several others including Dave Jubb and Richard Batty back in 2008 and has attracted interest from those looking for a lower volatility vehicle that seeks to deliver “equity-like” returns and can protect against the downside in markets.
In September 2012 Millar Jubb and Batty – who were all senior investment staff on GARS – moved to Invesco Perpetual, where they launched the rival Global Targeted Returns (GTR) fund one year later.
As volatility has ramped this year, inflows have continued rapidly into the IA Targeted Absolute Return sector with GARS, seeing £2.9bn of new cash over the past 12 months.
However, the biggest recipient over this period is in fact GTR which now at £4.2bn has seen £3.6bn of new cash in 12 months.
Clearly pleasing for Millar et al, but performance for underlying investors has been higher for those with GARS this year albeit also with higher volatility.
Performance of funds and index in 2015
Source: FE Analytics
However, Millar says blending the two portfolios could in fact be a successful strategy over the longer term.
If you look at two funds together since our launch the returns have been roughly the same but if you look at the pattern of our performance then you can see it is very different.
Performance of funds and index since October 2013
Source: FE Analytics
“That is kind of the whole point of it that we were bringing an existing philosophy of investing into somewhere else but it is a different research proposition which delivers the idea 'onto the menu'. Also you have a different portfolio management,” Millar said.
“Nobody says that you need just one global equity portfolio, they say you need to have a selection of them. However, the reason we moved is our confidence in our philosophy of investing that could deliver consistent lower volatile returns.”
As the graph below shows, GTR has outperformed GARS for the bulk of the period since its inception, although the fund has fallen quite hard in certain periods this year and today it is less than half a percentage point ahead.
Volatility relative to the FTSE All Share has also been slightly lower at 4.01 per cent compared to 4.45 per cent from GARS, although both portfolios have managed to achieve almost a third of the FTSE All Share’s volatility, 12.7 per cent.
If you were to blend a portfolio of 50 per cent GARS and 50 per cent GTR it would have delivered a return of 12.6 per cent since GTR’s launch but would have scaled back volatility to 3.71 per cent.
Performance of portfolio vs index since GTR's launch
Source: FE Analytics
GARS has tended to have a higher correlation to equities than bonds over this period while GTR, on has had a higher correlation to bonds.
However, Millar adds that the size of the portfolios may also play some role in their differing styles and that when his current fund reaches £20bn the team will have thorough examination of their investment strategy in a “route and branch” review.
Ben Willis, head of research at Whitechurch Securities, told FE Trustnet earlier in the year that he thought the two portfolios made a good pairing.
He said: “You can hold them together. Don’t expect them to behave in the same manner – they can complement each other very well.”
Whitechurch holds both funds in its portfolios, alongside other absolute return products, and says investors should remember that these vehicles often have a broad range of attributes despite their common sector.
“Obviously the GTR team came from GARS and I suppose a lot of people thought it would be the same with just a different name attached to it. But that hasn’t been the case,” Willis said.
“To be honest, they shouldn’t be replicating each other because there are two sets of teams making diverse calls on wide-ranging areas of the market, so it would be unusual for them to have completely aligned thoughts and for the strategies to run in the same direction.
“They have such a broad universe to work in – both running 20-plus strategies across the whole investment universe.”
Standard Life Global Absolute Return Strategies has an ongoing charges figure of 0.89 per cent. Invesco Perpetual Global Targeted Returns is slightly cheaper at 0.87 per cent.