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withdrew £5.6 billion from the UK’s biggest fund in the first six months of this year, adding to the £4.6 billion withdrawn in the second half of 2016 following underperformance.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