In recent years, the fund sub-sector seeing the greatest inflows has easily been multi-asset absolute return, home to several of the largest individual UK funds, writes Jeremy Beckwith.
SLI Global Absolute Return Strategies
If Newton Real Return is the sector grandfather, SLI Global Absolute Return Strategies is the 'big daddy': it is the largest fund in the entire UK funds market. It was launched in early 2008 and aims for returns of cash +5% before fees over rolling three-year periods.
It uses a combination of traditional assets, such as equities and bonds, and modern strategies that make use of advanced derivative techniques, which provide access to other asset classes such as interest rates, volatility and inflation.
These techniques mean the gross positioning of the fund has often exceeded 400%, though the rigorous risk control measures have limited portfolio volatility over the life of the fund. It is most easily understood as a hedge fund, though without the performance fees.
SLI GARS' credit positions push Q3 performance back into positive territory
The portfolio consists of around 40 different 'ideas' which are each expected to deliver positive returns on a three-year view and are then blended together.
For an advisor or end-investor it does mean it is difficult to understand how the fund is actually invested in contrast to the far more straightforward portfolio positioning used and reported by Newton Real Return.
An otherwise very steady performance record has been damaged by the fund's struggles over the last year, during which it has posted a loss of 2.4%.
The team has struggled with key long-term market views of a stronger US economy, which was reflected in many of their positions, in particular their short duration position in US bonds, the significant long position in the dollar, and a US banks versus consumer staples equity position.
Some fund research houses also have cited the sheer volume of assets now managed by the GARS team (currently at over £150bn) as a possible factor behind its recent decline in performance.
Invesco Perpetual Global Targeted Returns
Invesco Perpetual Global Targeted Returns is like the 'oldest son' of the sector. It launched when three of the GARS investment team left SLI to move to Invesco Perpetual in 2013. It adopts a similar investment process, though tends to operate with fewer individual ideas at any one time.
Like GARS, its gross positioning is substantial and it makes considerable use of complex derivative techniques, aiming to generate a positive return of cash +5% before fees over rolling three-year periods with less volatility than global equities.
One difference in approach is that many of the talented equity managers at Invesco, such as Mark Barnett, manage equity 'sleeves' for the GTR team, thereby adding an extra element of return from individual stock selection that has been absent at SLI.
