As I’ve written before, the popularity of the fund owes as much to its originality as anything else, while its impressive long-term record with positive returns across bear markets means it is one of the very few retail funds to live up to the ‘absolute return’ name.
However, with inventiveness comes complexity, and that’s what puts some fund pickers on edge. Without wanting to cast doubt on the professionalism of the wealth manager community, I do wonder how many of GARS investors can name even one of its 11 stated relative value strategies*, let alone its directional bets.
It’s not that investors necessarily need to know everything about the funds they hold, but would they really know when to buy, hold or sell a fund that is so arcane in nature? If you think markets are going to tank you trim back equities; if spreads tighten you sell bond funds; GARS is a different beast altogether which may also go some way in explaining why it has grown so large.
In all honesty, I can’t see any reason why the fund won’t continue to balloon. Unlike, say, a vanilla equity or bond fund, the concerns about capacity are less apparent.
A liquid strategy?
As Andrew Ford, investment specialist for absolute return at Standard Life Investments, explained to me recently, the fund has been designed as a highly liquid strategy.
“GARS generates its investment performance primarily from careful selection of market opportunities rather than from individual security positions, it therefore benefits from the aggregated liquidity of the major global bond, equity and currency markets,” he said.
“GARS also pursues investment ideas which tend to run for two to three years, so the turnover of the underlying strategies is relatively low and this means that the fund doesn’t have the same issues that a higher frequency trading strategy may encounter as it grows in size. These factors make GARS a very scalable product.”
While they mostly deny it, I’d say all fund managers probably have a figure in mind as to the optimal size of a strategy, and it will be interesting to watch Standard Life’s progress from here on in.
As I write this, a colleague is chasing up a story about the launch of another sophisticated Ucits absolute return strategy from a rival asset manager, while others are in the pipeline. It’s less a case of ‘me too’, more ‘if you liked that, try this’. GARS is going to get some more competition, and that can only be of the benefit to investors.
* US equity large vs US equity small cap; US equity technology vs small cap; US curve steepener; German vs French interest rates; US equity technology vs Taiwan equity; relative variance income; European financials capital structure; HSCEI vs FTSE variance; UK vs European forward-start duration; Hang Seng vs S&P volatility; Chinese vs Japanese FX volatility (source, fund factsheet)
