The fund targets a return of cash plus 3% which is lower than both the Standard Life and GLG Funds. In 2013 it achieved returns of 5.2% for the whole year with volatility below 5%. To compare Gilt volatility is over 5% and UK Equities nearing 15%.
Over the past ten plus years bonds have enjoyed a tremendous bull market; this is likely coming to an end. In essence investors can no longer expect the same level of returns and potentially there could be greater volatility. Volatility is what investors hate – significant swings in the value of their investments, either in a positive or negative direction.
In 2008 Standard Life launched a Global Absolute Return Strategy Fund with the aim of driving down the volatility to bond type levels but deliver returns at around 70 to 80% of equities. The target return was 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 invests across a range of different asset classes (equities, bonds, currency etc) to drive returns. We use the fund in the fixed interest part of our portfolios as a main underpin and have been looking for alternatives which we can blend into the fixed interest portfolios to work alongside this.
The Premier Conservative Growth Fund was launched in 2010. Where it differs from the Standard Life Fund and the GLG Fund which we have reviewed is that it is not looking to make macro calls. So it is not based around themes but more about pairing different assets together to smooth returns.
It will invest in a very carefully selected blend of equities, bonds, alternative assets and funds to create a portfolio that is designed to be lower risk. Many of the investments in the Fund are typically uncorrelated with equity markets, which means that the Fund is not generally reliant on rising stock markets to produce positive returns.
It is effectively a fund of funds which may make it easier for an investor to understand than the Standard Life and GLG Funds which use more complex instruments and assets. For this reason it may blend well with either or both.
A concern would be the size of the team which is relatively small and this was a point discussed with the managers. They believe because they are not making decisions around the macro picture (i.e. the idea of themes) and investing purely on pairing assets together this should not be a concern for us.