Rather than focusing on a single asset class such as shares or bonds, the Standard Life Global Absolute Return Strategies Fund (GARS) brings together 20-35 different strategies across various assets classes, including equities, bonds and currencies, and also aims to profit from changes in variables such as interest rates.
These are blended together with the aim of providing a positive return over any three-year period with less volatility than a pure equity fund, although this is not guaranteed. It is a diversified approach designed to ensure no single strategy dominates.
The themes running through the portfolio depend on SLI's view of the global economic environment and they currently include:-
- Multi-speed global growth - while the team believes a modest global economic recovery will continue they see significant divergences between countries and regions.
They are aiming to benefit from these divergences by using a number of 'relative value' strategies, where one share or stock market index is bought (a 'long' position) and another sold (a 'short' position). These strategies can profit regardless of the overall direction of markets - for example if the market falls, provided their long position falls by less than their short, they will make money. Of course, the reverse can also happen and the fund can make a loss.
Presently, they are buying Japanese equities while selling Korean equities on the view that a weaker yen will improve competitiveness and give Japanese companies an edge over rivals in the region. They are also buying German equities and selling French equities in the belief France will face difficulties pushing through reforms and this will negatively impact the stock market.
- Central bank policy - the team also recognises that the actions of central banks can influence investment returns.
While the US Federal Reserve has ceased its quantitative easing programme and growth looks robust, the Bank of Japan is continuing QE, partly in the hope of weakening the yen further and boosting growth. The team has therefore positioned the fund to benefit from Yen depreciation against the US Dollar.
- Resources and demand - after a torrid period of performance investors are sceptical over the prospects for mining companies, but the team sees potential.
They suggest mining companies are showing increased discipline in cost cutting and returning capital to shareholders. They also believe companies will benefit when commodity prices start to rise again. The investments in mining companies haven't performed well over the shorter term, but the team is confident in their medium-term prospects.
Elsewhere, the team’s exposure to Japanese equities vs. Korean equities has had a positive effect as has exposure to the US dollar against the Japanese yen and euro. Some of the team’s fixed interest investments have also performed well, including exposure to Mexican government bonds. The fund's exposure to high-risk high yield bonds and emerging markets adds further risk.
Over the past five years the fund has performed well, growing by approximately 33% which is in line with its cash benchmark of LIBOR GBP 6 Month +5%*. Please remember past performance is not a guide to the future.
Performance of the SLI Global Absolute Return Strategies Fund over the past five years
Past performance is not a guide to the future. Source: Lipper IM *to 01/04/15
|Annual percentage growth|
| Apr 10 -
| Apr 11 -
| Apr 12 -
| Apr 13 -
| Apr 14 -
|Standard Life Global Absolute Return Strategies||4.79%||7.71%||5.24%||2.45%||9.35%|
|LIBOR GBP 6 Month + 500 Bps||6.02%||6.23%||5.93%||5.61%||5.68%|
Our view on this fund
With its versatility and aim of providing modest but steady growth irrespective of market conditions this fund could form part of the core of a well-diversified portfolio. However, investors should note some of the strategies used by the team are higher risk and some involve using derivatives. If the manager makes the wrong calls, the fund will fall in value.
We removed this fund from the Wealth 150 list of our favourite funds across the major sectors in July 2013 following departure of Euan Munro, Head of Multi-Asset & Macro Investing and architect of the GARS strategy. A number of more junior recruits have joined the team since and we believe it is well-resourced overall. However, we are continuing to monitor the fund before reconsidering it for inclusion on the Wealth 150.