To expect these strategies to work over a short period is the wrong way to look at the fund. The Standard Life Fund dropped over 5% in one month in 2013 however returned nearly 6% for the year. Strategies over the short term can go against the fund but because of the number of positions, different strategies will deliver at different times and this is what will deliver the positive returns in aggregate.
Over the past ten plus years bonds have enjoyed a bull market; this is likely coming to an end. Investors can no longer expect the same level of returns and potentially there could be greater volatility. Volatility is what investors hate – this is the swing in the value of their investments, either in a positive or negative direction and for bond investors it’s definitely not what they are after!
In 2008 Standard Life launched a Global Absolute Return Strategy Fund which effectively was a hedged portfolio of blended assets giving bond plus type returns with the same or lower levels of volatility. The aim was to drive down the volatility but deliver returns at around 70 to 80% of equities and target a return of cash plus 5% after charges. This strategy has been successful and the fund now has over £30 billion worth of assets.
The key to the fund is that it is not a bond fund but invests across a range of different asset classes (equities, bonds, currency etc). We use the fund in the fixed interest part of our portfolios as a main holding and we have since been looking for a second fund which we can blend into the fixed interest portfolios to work alongside this.
The GLG Total Return Fund was launched in July 2013 and follows a similar strategy to Standard Life. In essence the fund pulls together different strategies to create neutral market risk which means that it is not dependent on the rise and fall of the market to make money and more importantly not dependent on one asset class. For investors who have concerns about bonds this fund takes that risk away and equally for investors concerned about the volatility in equities it does the same.
Often these funds are seen as complex because of the different strategies and investors avoid them for this reason. This needs reverse thinking, the fund is a fund of ideas which draw down on the management’s view of the world, and these are referred to as themes. They don’t mind which asset class or classes have the potential to deliver on that theme but more around the impact on risk and reward within the portfolio.
For investors the potential downside is track record. This was only launched in July 2013 at a time of extreme market volatility and to date the strategy has not delivered positive returns.