Lipper's Detlef Glow, head of EMEA research, reviews a one-on-one meeting on September 24, 2014, with Guy Stern, head of multi-asset and macro investing, Standard Life Investments in Edinburgh, and manager of Standard Life Investments Global Absolute Return Strategies (GARS) Fund, which was launched in 2006. He joined Standard Life Investments (SLI) in April 2008. Prior to joining SLI, Guy was the chief investment officer (CIO) for multi-asset solutions in the U.K. and USA at Credit Suisse.
Since European investors need to chase yield to achieve their performance targets, multi-asset products have become very popular. These products aim to offer equity-like returns with a significantly lower risk, which makes multi-asset strategies look very attractive for all kinds of investors. But not all products follow the same approach, and investors need to look beyond performance to understand the dynamics of the value drivers employed by the different multi-asset strategies.
The investment goal of Standard Life Investments Global Absolute Return Strategies Fund is to generate positive returns (Euribor + 500 basis points; gross of fees) over a rolling three-year period. To achieve this goal the fund manager has the ability to use equities, bonds, properties, currencies, interest rates, or alternative asset classes such as volatility in relative value or directional trades. In this regard the GARS fund diversifies investments in different asset classes as well as in different investment strategies.
Guy Stern stated that from his point of view, diversification is still working, but a portfolio manager has to diversify among risk drivers and not just asset classes. Mr. Stern explained that his team is using traditional investment techniques such as dynamic long allocations or active bottom-up securities selection, in addition to directional trading in markets with little or no long-term risk premium and relative value trades, to profit from the difference in performance, irrespective of market direction. By using these different return sources the portfolio of Standard Life Investments Global Absolute Return Strategies Fund is exposed to multiple and diverse market risks, ranging from pure market returns (beta) to independent alpha. With regard to the single trades Mr. Stern said that the portfolio construction is focused on the outcome, i.e. the question of whether the trade contributes to the overall target of the fund.
Figure 1 Standard Life Investments Global Absolute Return Strategies Fund Versus Peer Group Average, February 1, 2011–September 30, 2014 (in Euros)
Source: Lipper, a Thomson Reuters company
Asked if fund size has a negative impact on fund performance, Guy answered that the management team analyzes whether the actual market liquidity is high enough that they could buy and sell the position without having a big market impact. In this regard he explained that the fund management team checks which instruments (securities, futures, swaps, etc.) are available; if there is no instrument providing sufficient liquidity, they don't do the trade. He admitted that this approach has stopped them from doing a number of trades that looked promising. But, since he doesn't want to be cornered by other market participants, he only does trades that are scalable. He said, from his perspective fund size does not matter, since there are always good opportunities with sufficient liquidity available because the fund is mainly using macro strategies.
Figure 2 Total Net Assets, Standard Life Investments Global Absolute Return Strategies, January 31, 2011–September 30, 2014 (in million Euros)
Source: Lipper, a Thomson Reuters company
Because the fund management team had to deal with the departure of some team members, Guy Stern explained that the performance of the fund is not dependent on the knowledge and understanding of market segments from single persons. All 45 team members work together very closely and have successors who know the respective market segments very well. He said he believes the way the team has been built and structured is one of the reasons for the success of the fund; the team is very stable and shows a below-average turnover in staff, with only five people having left the 45-person team over the past six years.
According to Guy Stern, investors who want to buy Standard Life Investments Global Absolute Return Strategies Fund should have an investment horizon of at least three years, since this period is aligned with the investment objective of the fund. In addition, Guy pointed out that the fund does contain risk and is therefore not a money market substitute. He said an investor can't expect to generate a return above the risk-free rate without taking any risk. This means that investors who want to buy the fund need to be able to cope with its volatility. He also made clear that the returns from the past are no indicator of future returns.
The author acknowledges that he has no holdings in the fund mentioned in the article above.
The views expressed are the views of the author, not necessarily those of Thomson Reuters.