Standard Life Investments GARS fund

The Standard Life Investments Global Absolute Return Strategies (GARS) fund has taken a 2% fund position in Chinese equities.

Its Citywire Alternative Ucits A-rated lead managers and see the Chinese market as attractively priced and even though its growth rates are now below historic highs, they view it as still attractive in a global context.

The fund's strategy involves running a diverse range of up to 30 strategies covering bonds, equities, currencies and more specialised areas such as the relative volatility of different markets. Its lack of correlation to traditional asset classes and strong performance pattern has seen assets in the strategy swell to over £21 billion.

China fundamentals

The move into China reflects the belief that it will generate solid economic growth of between 7% and 8% per year.

‘On our estimates, this level of growth is not currently priced into equity market valuations. We feel that the successful leadership transition and relatively loose monetary policy will provide a supportive backdrop for continued strong economic growth’, says .

Another emerging market position comes through a holding in Russian equities. The managers view this as a geared play on the oil price, given that the country is the world’s second largest producer and the index is largely made up of oil and gas stocks or banks that lend to these companies.

The falling oil price and underperformance of the Russian market means performance for this holding has been a detractor, but its use for diversification purposes means that if the oil price was to rise, some equity positions such as those in the US would be impacted, but this would help soften the blow.

Backing the dollar

Currency calls, where one currency is preferred over another, have been helping performance. The long US dollar versus short euro trade has been one of the longest standing strategies, initiated in 2008 when the euro was trading at 1.56 to the dollar. Its decline has continued this year and now stands at around 1.31.

One of the fund’s central aims is to protect capital during challenging times, meaning it is constructed to perform in a range of outcomes. One scenario is that the multi decade bull run in western government bonds could soon turn. As a result, the portfolio’s sensitivity to increasing yields is at its lowest level ever.

‘We feel that buying core sovereign bonds at current yields is the investment equivalent of picking up pennies in front of a steam roller,’ he says.