In the first quarter of 2018, the fund was sitting at -1.9% net of fees, 1.3% lower than the sector average of -0.59%.
Absolute return strategies have enjoyed a meteoric rise in popularity in recent years due to many providers’ bold claims that their products can deliver positive returns in all market conditions.
But recent data suggests that these products have failed to deliver what they say on the tin, especially as volatility has picked up in recent months, the time when they should be protecting client capital the most.
SLI’s £19bn flagship Gars fund is no exception, having underperformed IA Targeted Absolute Return sector on a one, three and five-year view. It has now lost investors money over three years, delivering negative total returns of -5.1%, according to FE.
As a result, the mega fund has continued to see increasingly higher outflows. It accounted for £10.7bn of the firm’s total outflows of £31bn last year, up from the £4.3bn redemptions the fund posted in 2016.
SLI attributed the fund’s negative performance to general weakness in global equities markets over the last month, amid a tough period for tech, the largest constituents of US indices, and fears of a global trade war erupting between the world’s biggest superpowers – the US and China.
Against this backdrop, the firm said its US Equity Large vs Small Cap strategy suffered, enduring further setbacks as investors sought to diversify away from larger-listed firms more likely to be impacted by a global trade conflict.
Elsewhere, its European banks vs European equities hedged position suffered as softer economic growth in the region “weighed on long-term expectations for higher interest rates”.
However, the increased appetite for safe haven assets played well into its Australian interest rate and US real yields positions, as well as its Italian vs German interest rates position, designed to benefit from a reduction in spreads.
SLI added that some of Gars’ losses were offset by the portfolio’s Global Reits strategy and long Indian rupee vs Swiss franc currency play, as foreign investors flooded into India’s local bond market, while the Swiss franc remained subdued.
But it was less successful in its long yen vs Korean won call, as tensions between the US and North Korea were replaced by an escalating rift between America and China.
