Absolute Returns Funds

masonic

kangoora wrote: »

Where would a fund such as the SL GARS stand in terms of asset allocation i.e. geographically and asset class?

Coming up to retirement and trying to think of something less volatile to potentially limit the downside over the next few years, P2P is not an option for me overall at the moment.

You can get an overview from the factsheet. It uses a wide range of derivatives that don't fit into traditional asset classes. It profits, for example if certain currency pairs move relative to one another, or if specific market sectors do better than certain others, amongst other things.

Ryan_Futuristics

kangoora wrote: »

Where would a fund such as the SL GARS stand in terms of asset allocation i.e. geographically and asset class?

Coming up to retirement and trying to think of something less volatile to potentially limit the downside over the next few years, P2P is not an option for me overall at the moment.

Here's a look at their portfolio
https://uk.standardlifeinvestments.com/O_M_Gars/getLatest.pdf

So really quite unconstrained - with long and short positions in cash, bonds, equities, futures/derivatives ... It's the stuff of Tim Hale's nightmares

I think Newton Real Return compliments it well - both did well through the 2008/09 crash, and both seem quite uncorrelated ... My feeling is you can't really diversify enough with these kinds of funds - I'm trying to build positions in four or five, but alongside cash and P2P lending

masonic

Ryan_Futuristics wrote: »

So really quite unconstrained - with long and short positions in cash, bonds, equities, futures/derivatives ... It's the stuff of Tim Hale's nightmares

It might interest you to learn, until his latest edition, Tim advocated buying a broad basket of commodity futures.

Just out of interest, what exactly is your grudge against Tim Hale? You seem to constantly feel the need to criticise him, mostly without any reasonable grounds to do so. It's getting worse than your criticism of Vanguard.

Ryan_Futuristics

masonic wrote: »

It might interest you to learn, until his latest edition, Tim advocated buying a broad basket of commodity futures.

Ha, you're kidding?

Well Malkiel's been recommending holding active and passive funds recently - so both have evidently gone crazy ... Just John Bogle who's sticking to his guns

Well I just find talking to efficient market theorists a bit like dealing with the Flat Earth Society (to steal an analogy)

talexuser

redbuzzard wrote: »

Try charting GARS from launch against say the FTSE all share on a total return basis.

I don't hold any trackers. I had it around 4 years and it was just consistently poor compared to my other funds so I had better places for the money. A similar story I took a punt on Artemis Strategic Assets because Littlewood made me a ton of money when at Jupiter and held that since launch till last year and then sold out. Waiting for the correction while losing growth paying for hedges is the dilemma we all face.

Ryan_Futuristics

talexuser wrote: »

I don't hold any trackers. I had it around 4 years and it was just consistently poor compared to my other funds so I had better places for the money. A similar story I took a punt on Artemis Strategic Assets because Littlewood made me a ton of money when at Jupiter and held that since launch till last year and then sold out. Waiting for the correction while losing growth paying for hedges is the dilemma we all face.

I've flip-flopped on this a bit ... For a long time my approach has been to seek top alpha from everything I held

But at the same time I've always been reluctant to have my whole portfolio too dependent on long equities (as I've mentioned 68 year stretches of underperformance are not unheard of)

It was looking at how Yale and Harvard endowment funds build their portfolios, and they manage better than equity index performance, with bond-like volatility, by allocating surprisingly more than you'd think to real assets and alternatives



You can test crude versions of the models here - David Swensen Yale Endowment beats 60:40 with a lower allocation to equities ... And see the Larry Swedroe Minimise Long Tails portfolio for great performance with almost 70% in cash-like assets

https://www.portfoliovisualizer.com/backtest-asset-class-allocation#analysisResults

Radiantsoul

In terms of performance the Absolute Returns funds have fees which will eat into the returns(1.5% versus vs Vanguard fees of 0.1%). Running the Portfolio visualiser from Ryan shows that over 40 years the Yale Endowment return $805k versus $527k for a simple vanguard bond/stock portfolio. But if you add in the costs of you get a net return of $448k from DS and $507k from Vanguard. The reason is that the CAGR is 10.75% for Yale, versus 9.66% for "Vanguard", the difference in performance is not enough to match the increase in fees.

Of course you could not have invested in Vanguard in this way in 1972(or David Swensens portfolio, which is not really his portfolio anyway). And the point of absolute returns is not to shoot the lights out.

But these high cost products seems to me to offer better rewards for the folks that sell them than us poor retail investors.

Ryan_Futuristics

Radiantsoul wrote: »

In terms of performance the Absolute Returns funds have fees which will eat into the returns(1.5% versus vs Vanguard fees of 0.1%). Running the Portfolio visualiser from Ryan shows that over 40 years the Yale Endowment return $805k versus $527k for a simple vanguard bond/stock portfolio. But if you add in the costs of you get a net return of $448k from DS and $507k from Vanguard. The reason is that the CAGR is 10.75% for Yale, versus 9.66% for "Vanguard", the difference in performance is not enough to match the increase in fees.

Of course you could not have invested in Vanguard in this way in 1972(or David Swensens portfolio, which is not really his portfolio anyway). And the point of absolute returns is not to shoot the lights out.

But these high cost products seems to me to offer better rewards for the folks that sell them than us poor retail investors.

Well the actual Yale endowment fund returns over 15% annually because of (in large part) Alpha added by active management

They don't pay 1.5% fees on all their holdings - it's (unsurprisingly, being Yale) one of the most academic portfolios in existence ...

What they basically do is look at variance across funds in asset class returns, and use that to determine whether to target active management strategies or indexing

Wherever possible they'll use the lowest cost funds available (such as for property, bonds and US equity, where markets tend to be very efficient) ... But in asset classes where there's large variance in fund returns - such as private equity, emerging markets and alternative investing strategies - they'll seek the best managers


The portfolio analyser only contains things you can track with low-cost ETFs - so there'd be no inherent difference in fees ... With absolute return funds, two of the most popular (GARS and Newton) have around a 0.8% charge with no performance fees - cheaper than many ETFs and trackers, but most importantly, they don't move with other asset classes

redbuzzard

Glen_Clark wrote: »

except perhaps holding cash which should be safe and finding it has lost more through inflation?

I'm drawn to funds using linkers. That includes Troy Trojan. IL gilts might be yielding -0.5% in real terms but at least it is in real terms! When almost everything else apart from cash that's liquid is correlated, that looks good value as a charge for protecting capital and inflation hedging while the markets are at an all time high.

Trojan is also holding cash and gold. Cash presumably gives it firepower when opportunities come, and gold...well the main criticism of gold is that it has no yield, but when IL gilts look attractive at -0.5%, maybe gold as a diversification and an inflation hedge is not so unattractive.

I wouldn't hold IL gilts or gold directly, or a large allocation of cash, but I'm not unhappy about trusting a respected fund manager to use all three to protect value when equity prices are propped up by QE, bond yields appear to have overwhelmingly one way to go, and "high yield" bonds that should really be called "junk" are at only 5%-6% with a high default risk.

Interesting times, or maybe there is nothing new under the sun!

Ryan_Futuristics

Troy Trojan's performance through two crashes and two bull markets - and the worst drawdown only 13.7% (compared to 45.6% for the FTSE All Share)



They are long-term hedges, and there are many different models for these funds out there - but I think if nothing else it's a lesson in the importance of being diversified and not losing money (over the long-term)


PS - so I don't sound like I'm going nuts over Absolute Return funds here - a cash ISA would've also beaten the All Share index over the same period ... Developed equities have been in a bit of a rut since the 90s