SLI Gars downgraded after top boss exits

Morningstar uncertain whether team can execute the long-term strategy

Morningstar has downgraded Standard Life Investments Global Absolute Return fund following a wide restructure of the team which saw lead manager Guy Stern step down.

In a recap of its monthly rating decisions, the research house said it had dropped the mega absolute return fund from ‘bronze’ to ‘neutral’.

The fund had already been placed under review following news of Stern’s imminent departure. Stern had been with Aberdeen Standard Investments for over a decade and took up the mantle at Gars when the strategy’s original architect Euan Munro left to become CEO of Aviva Investors in 2013.

New team structure raises concerns

Last year, Aberdeen Standard Investments confirmed it was bringing in Schroders head of multi-asset investments for Europe Aymeric Forest (pictured) to replace Stern early 2019.

Additionally, the fund group promoted three individuals to named managers on the Gars mandate, bringing the total number of people working on the team to eight. At the time commentators suggested new leadership at Gars could revive its tarnished brand, which has been battered by heavy outflows and shaky performance.

But Morningstar said the personnel changes at the fund had created “uncertainty” in the team structure and “its ability to efficiently execute Gars’ process over the long term”. “As a result, investors should let the dust settle around the transition before considering this fund although it is worth keeping an eye on given its longer-term successful history.”

Gars losing streak continues

The changing of the guards at Gars’ comes at a precarious time for the fund when performance remains lacklustre and investors are dumping absolute return funds by the bucket load. Between January and November last year, Gars shrivelled from £20.7bn to £12.6bn.

Investors who have stuck by the fund for three years have lost money, with Gars returning -5.6% compared with the IA Targeted Absolute Return’s 2.2%.

Over one year the fund’s losses are even greater (-6.7%). Despite absolute return managers claiming that their funds will weather volatile markets, Gars delivered its worst monthly performance of 2018 during the massive sell-off in October.

6-months1-year3-years5-years
SLI Gars-1.8%-6.7%-5.6%1.3%
IA Targeted Absolute Return-2.0%-3.1%2.2%6.8%
Source: Trustnet

It was unable to break the streak of negative returns during December and was down 0.3%, despite some lucrative currency calls.

In the fund’s latest monthly factsheet, ASI investment director David Bint said Gars’ long Japanese yen positions against the Australian dollar and Canadian dollar “thrived” due to slowing Chinese growth and declining oil prices but said this was partly offset by its long US dollar versus euro currency options exposure.

Weightings in US equity, global equity oil majors and a bet on emerging markets versus Brazilian equity also detracted from performance over the month.

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