“What do people really want when they put money in an ISA or a pension fund? Fundamentally they do not want us to replicate the return on the FTSE All-Share, or even deliver 1% per annum more on that index.
“What investors want is a comfortable retirement and beating an arbitrary benchmark does not guarantee you are going to achieve that, whereas delivering 5% more than cash or a percentage above inflation are outcomes that are much more likely to deliver the right end result to the end customer.”
Munro sees Aims as being the “shop window” for Aviva Investors’ capabilities, while also recognising the importance of the “component” individual strategy funds. Importantly, given some wealth managers concerns about undue complexity in the retail funds space, Munro encourages transparency in detailing the different 25-30 ideas behind Aims.
“If it was operationally easy to generate a 5% above cash return with around 5-6% volatility, then everybody would be doing it,” he says. “It is complex and you need a whole bunch of experts coming together and working as a team. There is a lot of operational complexity but it is not a black box, it is a glass box and people can look in if they are interested and see it.”
Addressing concerns about liquidity, Munro is also clear about the eventual capacity for Aims, £40bn. He says that while some of the ideas – for example dollar/yen trades – could still be done with trillions under management, others – such as, say, a position in the Mexican bond market – would be harder to achieve at such a large scale.
“We are building a portfolio that has the potential to grow to £40bn, and I do not allow managers to do anything that we could not do if the fund were that size,” he says. “People ask if we are beating the competition because we are smaller and more nimble. But if I caught our guys making decisions because we are more nimble, I would be furious because that invalidates your longer term track record.”
Tactical additions
Outflows are just as much a concern for Aviva Investors as inflows though – while Aims funds under management reached close to £2bn at the end of September, this was overshadowed by gross redemptions across its fund range of £4.5bn in the third quarter.
Munro cites Fed chair Janet Yellen’s comments on the threat of a bubble in junk bonds as one reason behind outflows from its global high-yield business, while money has also flowed out of its global convertibles strategies. However, there was inflows into its infrastructure and long-lease property funds.
