Standard Life Investments Global Absolute Return Strategies (GARS)

dunstonh

Yes, I am near to retirement and I am risk adverse but I would not be contemplating an annuity.

What risks are you averse to?

Inflation risk, shortfall risk, investment risk......

My difficulty is finding something between placing a further £60,000 in the "safer" area between cash and equities.

cash is not low risk when it comes to income provision. It is low risk if it is short term and interest is being retained (not drawn).

coyrls

Sterlingtimes wrote: »

Thank you. Yes, I am near to retirement and I am risk adverse but I would not be contemplating an annuity. Apart of my DB pensions, the greater part of my DC is in equities, but I am holding £90,000 in cash to bridge the five year gap until State Pension is paid. My difficulty is finding something between placing a further £60,000 in the "safer" area between cash and equities. The absolute return funds attract me more than gilts but their behavior is peculiar, for instance my loss of 2% over 12 months in GARS is offset by an 11% return in an equal holding in Newton Real Return. In a way, over performance is almost as worrying as under performance because the funds are not behaving as they should.

You are correct that the intention of absolute return funds is to deliver steady growth under all market conditions but as you have discovered there is a big gap between the intention and the actual results. I think that should be enough to make you wary.

[FONT=&quot]In order to deliver growth regardless of market conditions, absolute return funds have to employ all sorts of exotic investment practices, with the rather predictable result that far from reducing risk, they actually increase it. [/FONT]

Sterlingtimes

coyrls wrote: »

You are correct that the intention of absolute return funds is to deliver steady growth under all market conditions but as you have discovered there is a big gap between the intention and the actual results. I think that should be enough to make you wary.

[FONT=&quot]In order to deliver growth regardless of market conditions, absolute return funds have to employ all sorts of exotic investment practices, with the rather predictable result that far from reducing risk, they actually increase it. [/FONT]

Thank you, coyrls. My conclusion is much the same. If the account value is £26 bn and Standard Life is charging just under 1% to manage it, the very clever people are receiving £260 million a year in fees. It is a poor excuse for them to tell us that they have failed to meet their objective because of unexpected market conditions when the whole reason for their receiving £260 million is to provide an absolute return irrespective of market conditions.

dunstonh

If the account value is £26 bn and Standard Life is charging just under 1% to manage it, the very clever people are receiving £260 million a year in fees.

It is unlikely to be 1%. Most workplace schemes have the default fund (internal funds) capped to a maximum of 0.75%. That is before scheme discounts and fund based discounts that are likely to take it lower than that on most pensions. Figures around 0.4% are more likely.

It is a poor excuse for them to tell us that they have failed to meet their objective because of unexpected market conditions when the whole reason for their receiving £260 million is to provide an absolute return irrespective of market conditions.

On mono charged contracts, the fund charge also includes the administration of the pension as well as the administration of the funds.

Std Life do not have 26billion in the absolute fund.

Also, who is to say that they are not achieving their objectives. Nowhere will they say that guarantee growth every year. They aim for it but it is not always possible as anyone with investments should know.

Sterlingtimes

dunstonh wrote: »

It is unlikely to be 1%. Most workplace schemes have the default fund (internal funds) capped to a maximum of 0.75%. That is before scheme discounts and fund based discounts that are likely to take it lower than that on most pensions. Figures around 0.4% are more likely.



On mono charged contracts, the fund charge also includes the administration of the pension as well as the administration of the funds.

Std Life do not have 26billion in the absolute fund.

Also, who is to say that they are not achieving their objectives. Nowhere will they say that guarantee growth every year. They aim for it but it is not always possible as anyone with investments should know.

The charge that I in fact pay in my work based pension is 0.843%. HL indicates 0.89%.

The fund size indicated at HL (the same number appears in press articles) is £26.163 billion.

dunstonh

you are right. I am gobsmacked at how much they have in that fund given its short life.

That is another good reason not to be in the fund. Once a fund becomes too large, the fund manager has to buy investments that they do not really want. That fund is way oversized for my liking. The compromises having to be made could well be part of its recent problem in respect of performance. I also note that the fund was £44bn in 2015. So, even taking into account a small loss, it appears the fund is losing investors very quickly. That too will create a drag.

Malthusian

I usually roll my eyes when people talk about a fund being "too large", as if the manager is inhibited by the size of the fund in what he buys then this is probably a good thing as it reduces his scope for bad decisions. But with Standard Life GARS I would certainly be concerned. Because presumably the larger the fund is, the more extremely clever strategies the fund managers have to dream up and there's a law of diminishing returns with these things. If another billion of investors' money comes in and they decide that they've already got too much in their other strategies, so they'll gamble on the divergence between the Malaysian ringgit and bat guano futures, we must conclude that they have little confidence in this strategy or they'd have invested in it already.

This is the current list of "strategies" employed by the fund:

Directional Strategies

US real v nominal steepener 8.10%
Australian duration 7.30%
Long INR v CHF 6.80%
Long USD v SGD 4.80%
Short US duration 4.60%
Long USD v EUR 3.90%
Australian forward-start interest rates 3.70%
Long USD v KRW 3.50%
Long SEK v EUR 2.50%
Long INR v KRW 2.00%
Long equity variance 0.10%
Long European payer swaptions 0.10%
Mexican duration Closed
Mexican rates v EUR Closed

Relative Value Strategies

US equity large cap v small cap 8.70%
US butterfly 3.50%
US equity tech v small cap 3.50%
US equity banks v consumer staples 3.40%
US and Europe v UK duration 3.10%
Asian v S&P variance 0.60%
HSCEI v FTSE variance 0.50%
EuroStoxx50 v S&P variance 0.10%

If every investor followed the rule of "don't invest in what you don't understand" this fund would struggle to attract £26 million of funds, let alone £26 billion.

dunstonh wrote:

Also, who is to say that they are not achieving their objectives. Nowhere will they say that guarantee growth every year. They aim for it but it is not always possible as anyone with investments should know.

Absolute return funds are supposed to deliver positive returns in all market conditions. If they don't achieve that aim then what's the point of investing in them and paying the higher charges and taking on higher risk?

Their stated objective is to deliver returns of cash + 5% over rolling three year periods, which is clearly a less exacting target than the traditional "absolute return" objective of achieving positive returns every calendar year. They seem to have managed this in the first two three-year periods of its life but are likely to miss it in the third unless there is a dramatic upturn between now and January.

bowlhead99

Malthusian wrote: »

Absolute return funds are supposed to deliver positive returns in all market conditions. If they don't achieve that aim then what's the point of investing in them and paying the higher charges and taking on higher risk?

Their stated objective is to deliver returns of cash + 5% over rolling three year periods, which is clearly a less exacting target than the traditional "absolute return" objective of achieving positive returns every calendar year.

Yes, it's a less exacting and more sensible target to say you'll be positive over any rolling 3 year period, rather than specifically positive from 1 Jan to 31 Dec in a year. Aside from the former being easier to achieve, it is a useful measure for a medium term investor who is not just investing for a specific 12-month timeframe.

They seem to have managed this in the first two three-year periods of its life but are likely to miss it in the third unless there is a dramatic upturn between now and January.

You might misunderstand what a 'rolling three-year period' is. It is the 3 year period started or ended today (or 30 September 2016). Next month it is the 3 year period started or ended October 2016 .

Rather than a sharp "point-in-time" result anchored by the start and end of a year and starting a new one after the first one has finished, a rolling return measure is designed to account for the fact that investors typically do not invest on 1 January for the current 1- or 3- or 5- year period but instead are investing over many periods.

So, GARS has NOT just had two three-year periods since inception, now approaching a third. On 29 January 2008 they launched and on 28 January 2011 you can judge them to see if they hit that 3 year target. In February 2011 you can see if they hit a target set for themselves at February 2008. June 2011 you can see if they hit a target set for themselves at June 2008. And so on. You could roll the benchmark target daily if you like, although they only publish factsheets monthly. But there have been loads of these 3-year rolling periods since inception, and they have probably met the benchmark pretty well when you count how many successes or failures there were.

A rolling return is a decent tool for analysing whether the strategy is being met, because in volatile market periods the return can be quite different when you move the start and end dates by a month or so, and in the real world nobody really wants to have the performance delivered just on a Jan-Dec timeline because we don't invest like that.

At the moment the return crudely looks like 2 - 2.5% annualised for the last 3 years, which is of course below sterling cash plus 5% annualised, so they're not meeting their target. Most funds don't meet their target at all times.

A number of those positions or strategies listed are kind of market-neutral, perceived value strategies. E.g., betting on banks vs consumer staples is something that can make money when the FTSE is up OR down. Similarly something like long US dollar short Korean won is not a position that moves into negative territory just because GBP strengthens, it would still deliver positive results if the call is correct to be long one against the other. So, if all equities and debt is very expensive and 'due' a downwards correction or crash in sterling terms, this sort of fund might allow you to sit on the sidelines and keep making money when that crash happened. By not having a high correlation with debt and equities it can be a diversifier to a portfolio.

But effectively with this type of fund your returns are coming from the choice and implementation of the strategies of SL's individual fund managers and their teams, rather than simply riding a general global debt or equity market up or down. And the management team has not been without turnover in the period since 2008 and past results are no guarantee of the future etc etc. However, it is worth noting that despite the sub ten year fund life, an unconstrained multi-strategy approach is one that SL had used successfully internally on their DB pension assets before rolling it into an externally-facing product.

FWIW, Dunstonh mentioned it being over 44bn last year implying it has had huge withdrawals since ; although that number appeared in some article on a cursory google search, I think that might be a different measure than the £26bn (perhaps some gross assets measure) as I don't remember it being that high.