SLI reveals risk exposure for GARS bond fund

Standard Life Investments explains where the risk exposure lies within its new AR Global Bond Fund.


The Luxembourg-domiciled fund – a bond equivalent to its equity GARS (Global Absolute Return Strategy) proposition – was launched in March with £100m of seed money from a single institutional investor.

The two funds use the same risk-based approach with exposure managed by risk rather than physical allocation. A combination of the fund’s physical allocation and the derivatives used to manage the risk exposure shows where the actual risk is being taken.

This is reflected as a tacking error compared to cash which, as at the beginning of April, gave the fund the following strategic risk exposure:

  • Curve – 0.2%
  • Duration – 0.2%
  • Inflation – 0.7%
  • Credit – 0.8%
  • Cross market – 0.7%
  • FX – 0.6%

Tam McVie, product specialist at Standard Life Investments’, stressed the key to the fund is the management of its risk exposure as much as its physical exposure, saying: “For a multi-asset fund the big lever is equities. Getting that right is key.

“For absolute return bond funds, the big lever is credit. The differentiator for Standard Life Investments is that we are forced to stay diversified within fixed income and FX so credit beta is the key for us.”

Explaining how the fund sits within the current cycle, Richard Batty, global investment strategist at SLI, said: "It will do well where investors are worried about the rate cycle. Its target is Libor plus 2.5%, so this is when it will gain traction.

"Institutional investors in particular are looking at the next cycle, on a three to four year view, and are worried about where the bond market will go and about the risk of capital losses. If you can deliver an absolute return with low volatility and no duration – the fund’s duration is around 0.5 years – they will like that very much."

The fund’s institutional share class has an annual management charge of 1.25% and will not levy any performance fee.

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