It is very difficult to talk about the IA Targeted Absolute Return (TAR) sector without referencing the oncemighty Abrdn Global Absolute Return Strategies Fund (or Gars, to most) which, at various points over the years, has accounted for almost a third of the sector’s total assets.
A few weeks ago, it hit the headlines that the fund would be rolled into Abrdn’s suite of diversified assets funds following lacklustre performance and slow demand.
But should all funds in the TAR sector be, well, TARred with the same brush? The sector’s objective is broad: for funds to achieve positive returns in any market conditions over any timeframe of up to three years – although these positive returns are not guaranteed. Lipper requires 20 different classifications to cover the 92 funds in the sector.
FE Fundinfo data shows that, over three years, the highest-returning TAR fund (Liontrust GF European Strategic Equity) is up 84%, while the worst performer (EV International Global Macro) is down 22.5%. And in the middle, there are 30 funds that have returned between zero and 1% over the same time frame. It goes without saying that performance comparisons across the sector do not work.
Therefore, a post-mortem into what happened to Gars could be useful to ensure the same fund-specific mistakes do not happen again. Views on the heterogenous sector are also subjective and wide-ranging, with some fund selectors favouring low-beta equity long/short offerings, while others believe global macro mandates can provide attractive risk-adjusted returns, so long as the teams are flexible and dynamic.
This month’s cover story is not about sticking the boot into Gars and revelling in its misfortune – it is about taking a deeper dive into the sector at a time when the entire market regime is changing. A portion of investors have only known a world where equities have ticked up nicely – a world of loose monetary policy, low inflation and ‘free money’.
But now could be a wise time to seek exposure to market-neutral or lowly correlated strategies, as we wait to see how the macroeconomic and monetary policy backdrop plays out over the coming months and years.