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Investors treating UK’s biggest fund unfairly, says Burdett

The underperforming £23 billion Standard Life Investments Global Absolute Returns Strategy (Gars) fund is being ‘penalised’ by investors who do not understand it, says fund picker Rob Burdett.

 
Investors treating UK’s biggest fund unfairly, says Burdett
 

The mighty Standard Life Investments Global Absolute Returns Strategy (Gars) fund is being ‘penalised’ by investors who did not understand absolute return does not mean guaranteed outperformance, says fund selector Rob Burdett.

Investors withdrew £5.6 billion from the UK’s biggest fund in the first six months of this year, adding to the £4.6 billion withdrawn in the second half of 2016 following underperformance.

The fund uses many strategies to trade in currencies, bonds and stock market futures with the view to protect investors’ capital and make small, incremental gains. Over five years it has delivered a 17% total return but in the past two years has fallen in value.  

According to figures from the Investment Association, investors pulled £147 million from the £23 billion fund in August, while Gars rival, Aviva Investors Multi-Strategy (Aims), saw inflows of £223 million.

Burdett, who co-manages the F&C Navigator Distribution  fund of funds range, has increased his exposure to absolute return funds in recent months.

He believes the Gars fund is being ‘penalised a bit harshly’ for its underperformance as its Aviva adversary under former Gars manager Euan Munro has also failed to hit target but has been rewarded with inflows of investor money.

Burdett believes Standard Life Investments went ‘out of its way to educate people [about Gars] but they still do not understand it’.

‘It’s a complex product sold to people who are not complex,’ he said. ‘You get people buying absolute return funds who hear ‘guarantee’ and think it will not go down, but we all know funds go down and that is part of life.’

However, Burdett added that the fund was ‘mis-bought not mis-sold’ and investors have been scared by the underperformance of what they thought was a one-way bet.

‘With Gars, people have been bailing out because of some negative returns...But [the fund] did a good job in 2008 and 2011 when [investors] really needed help,’ he said.

‘People need to take risk to get return but they have been trying to avoid risk altogether through a product that does not appear to offer [risk]. At the end of the day it is still a group of people [fund managers] making these decisions and sometimes [those decisions] will be good and sometimes they will not.’

While Burdett (pictured) and co-manager Gary Potter have added to their absolute return fund allocation, they have moved away from property and currently have no infrastructure investments.

‘I find it hard to invest cheapily and easily in property,’ he said.

There are alternative assets that Burdett prefers, including Darwin Leisure Property, an open-ended unregulated collective investment scheme. The fund owns and operates caravan parks in the UK.

‘What we want from alternative assets is just to pick up the slack when the markets have a hissy fit,’ said Burdett.

‘Darwin Leisure is counter-cyclical and a recession beneficiary. In 2008 and post Brexit it improved because weak currency made overseas trips more expensive.

‘If we find the right thing we will increase alternatives. With inflation picking up a bit and the job market tightening both here and the US...we want things that are a bit immune to that risk.’

7 comments so far. Why not have your say?

richard tomkin

Oct 16, 2017 at 14:13

" a complex product sold to people who are not complex" : thanks very much,it would be hard to be more patronising.

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King Lodos

Oct 16, 2017 at 15:16

The problem is all three of these funds are playing a betting game against the market, and they're just too big, too slow, and too under-resourced not to get picked apart.

The inability to make positive returns in the past 2 years (when it's been so easy, with simple, long market exposure virtually anywhere) tells me the directional bets GARS has made have contributed significant negative alpha .. And I think in better hedge funds (like AllBlue) getting out of those positions would've been much swifter

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Law Man

Oct 16, 2017 at 16:27

The reason SL GARS does not attract money is simple: it performs badly.

Over 12 months ago I pulled my money out and put it in 'wealth preservation' ITs.

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King Lodos

Oct 16, 2017 at 17:52

GARS had a nice run early on (and it's still the UK's largest fund isn't it?).

But it was much smaller obviously .. and had all the names who since left to Aviva and Invesco working together.

I still like the strategy – basically 1/3rd market risk, 1/3rd directional bets, 1/3rd hedging(?) – but with highly active funds (or traders) I don't think you should have any patience for poor performance .. The fund would've done better just keeping the third market exposure and moving the rest to cash

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16

Oct 17, 2017 at 10:58

As an investor i have not considered myself to be unfair. I have many criteria for selecting where I invest but fairness to funds or fund managers isn't one of them.

Those that withdrew funds didn't want to be in that fund. Wrongly or rightly.

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David Andrews

Oct 21, 2017 at 10:38

" being ‘penalised’ by investors who did not understand absolute return does not mean guaranteed outperformance, says fund selector Rob Burdett"

Could it not also be that many people have realised that most Absolute Return funds have failed to hit their own targets, so it is insight rather than a lack of financial sophistication.

I have just looked up GARS and although SL talk about a three year rolling-target of cash + 5% per year, they have disastrously failed to meet that. The return over the last 5 years has been 15%.

I don't understand why Burdett is bleating.

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Stephen B.

Oct 21, 2017 at 13:34

I think the basic problem is the "absolute return" naming, which implies that these funds should always produce a positive return. In fact what most of them are is "market uncorrelated", i.e. they won't be badly hit if markets fall but they will still fluctuate quite a bit and those fluctuations may well be negative. That may not be mis-selling by GARS per se, but it is mis-selling by the industry in general. It's also unfair to genuine absolute return funds, e.g. "cash and call" strategies which really do limit the potential loss.

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