Where the fund will appeal is on the predictability of returns and visibility of assets.
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.
We recently met Paul Smith who manages the Premier Defensive Growth Fund as well as their Corporate Bond Fund and Money Market Fund. His expertise is in managing low risk funds and the approach he discussed made this an interesting option for those funds seeking above cash returns but minimal volatility.
In this update we will share some of the thoughts from the manager.