SLI GARS criticised for lack of diversification


Standard Life Investments Global Absolute Returns Strategy gets the bulk of its returns from 15 out of its 127 strategies, says Fundhouse, which has given the fund a negative rating.

Research by the ratings agency found that the returns of the fund are concentrated, rather than having diversified sources of returns.

“We found that bonds delivered a disproportionate amount of the upside, whilst absorbing a small part of the risk budget,” Fundhouse says in its report on the fund. “Equities and currency had the opposite effect – they delivered very low returns, but absorbed substantial risk budget. All this evidence works against the central premise of the fund, in our view – diversification of returns.”

The ratings agency says it would have instead expected the fund would have diversified sources of returns that would deliver on the fund’s goals regardless of equity or bond market trends.

The research company has maintained the fund’s Tier 3 rating, first concluded in 2014, which means it has “fundamental concerns” about aspects of the fund and believes there are better alternatives available.

“All the evidence works against the central premise of the funds, in our view – diversification of returns. It makes us wonder: should the historical primary return driver (income-driven strategies) not deliver; there is seemingly little evidence of what alternatives the fund has to fall back on,” the report states.

Fundhouse managing director and co-founder Rory Maguire said a number of funds are rated negatively, but GARS is the fund clients ask about most at the moment.

The report also noted that the fund has met objectives, producing cash plus 5 per cent since inception and through the global financial crisis, which it said this had been achieved with low volatility.

“Equally, the people who run the fund are impressive and theoretically have all the tools necessary to execute a strategy such as this one. They have also pioneered this investment genre, which is admirable,” the report stated.

A statement issued by SLI said from inception to the 2015 year-end, around 60 per cent of GARS strategies have delivered a positive return.

“In our Multi Asset suite of products we take longer-term market views and combine them in such a way that our portfolios are resilient to unexpected market shocks,” the statement read. “Over the very variable decade GARS has run this approach it has proved long-term to be a consistent way of meeting investors’ needs for good returns with very low levels of risk.”