Standard Life advice arm delivers blow to Gars as it dumps shrinking mega fund

Standard Life advice arm 1825 has dumped the firm’s Global Absolute Return Strategies fund bumping up the already significant outflows from the £4.6bn fund.

Aberdeen Standard Investments Gars, previously known as SLI Gars, had ranged from 1.22% to 3.88% of the five 1825 portfolios but those positions were all cut to zero in November, according to a Q4 2019 update.

It had already been reducing its exposure to the Investment Association Targeted Absolute Return fund with portfolios holding 7.76% a year ago when assets in the fund were more than double what they are now at £11.6bn. Three years ago, in January 2017, the fund had AUM of £25.1bn, according to Morningstar data.

1825 also dropped the £9.5bn Invesco Global Targeted Returns funds, which had matched the weightings of ASI Gars.

Strategic asset allocation to “diversifying growth assets” was halved over the period and reallocated to other growth assets, excluding property. These growth assets include equities, high yield and emerging market debt.

ASI Gars loses confidence of internal team

“That will certainly be seen as a as a bit of a blow if they’ve lost the support and confidence of their internal team,” said AJ Bell head of active portfolios Ryan Hughes.

Internal teams are usually given a little bit of leeway because of the additional information and access they provide, said Hughes.

ASI Gars monthly outflows doubled to £1.2bn in November compared to their 2019 average of £611m, according to Morningstar data. The fund has faced continuous monthly outflows for the last three years with the largest outflows being £1.3bn in December 2018, although at the time assets under management were £11.3bn.

The fund’s assets under management had been £6.1bn in October 2019 before 1825 dumped the remainder of its allocation to the fund.

Fairview Investing consultant Ben Yearsley said it was “incestuous” that 1825 held the fund in the first place and it’s good that the fund has now been dropped.

The most equity-heavy fund, Portfolio 5, now only holds Aberdeen European Enhanced Index from the asset manager’s range. The lower-risk Portfolio 1 also holds the Aberdeen Global Index Linked Bond Tracker, plus a short-dated version of the index fund, Aberdeen Liquidity Fund and the SLI UK Real Estate feeder fund.

Significant allocation to JPM UK Core Equity a ‘ballsy’ move

The biggest addition to the portfolios was JPM UK Core Equity, which went from zero to between 4.84% and 16.29%.

Yearsley described that as a “ballsy” move.

“That’s quite a bit but if you’re buying a new fund, there’s no point buying 1 or 2%. If you’ve got conviction you buy 5 or 10% or whatever the number is.”

The 1825 update stated it was more optimistic on the outlook for UK equities due to the “increased likelihood of a clean Brexit” in the aftermath of the Conservatives’ convincing majority in the 2019 election.

But several UK equity funds were dropped from the portfolios over the period, including another in-house product, SLI UK Equity Income Unconstrained, which had been 4.35% of the most adventurous fund. The £1.1bn fund is managed by Thomas Moore, one half of the Aberdeen Standard Investments duo that took over the Woodford Income Focus fund.

Yearsley, who holds the fund, said: “It has been abysmal but it has picked up since September. I hold it for a very specific reason and that is I think it will do well if there is a proper UK bounce.”

The Majedie UK Equity fund was also sold from portfolios.

Counter intuitive move away from alternatives

Willis Owen head of personal investing Adrian Lowcock described cutting alternatives exposure as “counter intuitive” as equity markets fall from peaks and bonds face further interest rate cuts.

“These can help portfolios by providing diversification benefits, reduce risk and volatility as well as protect capital,” Lowcock said.

Looking at ASI Gars in particular, he notes performance had picked up in 2019 but says it is too early to say whether this improvement will reverse long periods of underperformance.

ASI Gars performance

Source: FE Fundinfo

“With the coronavirus having impacted on markets, the TAR sector has suffered losses along with other asset classes, although compared to equity markets these losses are less significant with the sector as a whole down less than 1% so far this week,” Lowcock added.

Hughes said a lot of absolute return funds are “effectively bond beta” with higher fees. AJ Bell prefers high quality long/short equity funds in the sector, such as Janus Henderson UK Absolute Return.

Yearsley said he wouldn’t hold absolute return funds in any environment.

“If you’re worried about volatility and markets falling go to cash. That’s the only surefire thing you can do,” he said.