Neil Richardson, a portfolio manager on Standard Life Investments’ Global Absolute Return Strategies (Gars) team, has said that the £20 billion fund may miss its target this year because of difficult markets.
Gars, lead managed by Citywire A-rated Guy Stern (pictured), returned 0.4% in the first three months of the year, and generated 1.2% over the year to the end of April. It targets 5% above cash per year over rolling three-year periods, which would have been equivalent to 5.7% over the past year.
‘I can’t guarantee we’re going to make our 5% return this year,’ Richardson said. ‘I would love to be able to provide some sort of guarantee about our returns, but sadly it is rather dependent on what happens in investment markets.’
However, Richardson maintained that he was not overly disappointed by the first quarter’s return. ‘40 basis points may not sound very much, but if you look at what has happened in most asset classes the answer is not very much. There was not a lot of movement.’
The fund’s three-year target returns are set gross of fees. Gars has now returned a gross 20.25% over the the three years to the end of April, while cash plus 5% would have generated 19.1%. Net of fees, Gars returned 15.8% through the period.
Richardson expressed optimism about the outlook for the strategy, though.
‘I am very confident that we have a very interesting portfolio and some exciting opportunities, so over a two to three-year timeframe I feel much more confident saying we will achieve our target return. But over the next several months, it is slightly short term for the way we think. I can see no reason why we should not, but over that timeframe it is more dependent on the direction of the markets.’
Richardson also dismissed claims that Gars was being run too cautiously.
‘There is a view that to achieve such low volatility, essentially we must be investing in some really dull ideas that are not risky. That is completely untrue. If you look at the history of the fund, actually it has made its performance by taking quite bold moves in quite risky asset classes. The skill has been managing the risk around that.’
As an example, Richardson’s cited the fund’s move into credit in 2009, when the market consensus had been that yields could only rise, despite already being at levels that implied more insolvencies than had occurred during the great depression.
Recent trades by the Gars team include backing large-cap US tech stocks versus US small-caps and buying into undervalued oil majors.