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RBC: client exodus leaves Gars on course for £12bn outflow in 2018

Net outflows from Gars are at record levels and will hit £12 billion in 2018, according to RBC Capital Markets.

RBC: client exodus leaves Gars on course for £12bn outflow in 2018

Net outflows from Standard Life Aberdeen’s Global Absolute Return Strategies (Gars) are at record levels and will hit £12 billion in 2018, according to RBC Capital Markets.

Estimates from the broker suggest that a record £1.8 billion in net assets left the fund during September, a 44% rise on the prior month.

In the year to date, RBC estimates the strategy has suffered £8.3 billion in net outflows, an average monthly outflow of £900 million, with its assets under management (AUM) believed to have fallen from £33.2 billion at the start of the year to £23.5 billion at the end of September.

The estimate is up from a forecast 2018 outflow of £9 billion issued by RBC as recently as August, when the bank estimated that the fund could lose £21 billion in client cash over the next three years.

Analysts at the bank noted that a three-year track record is key for marketing, and Gars has foundered against rival mandates run by Invesco and Aviva over this period.

Over the three-year period to 10 October 2018, on an annualised basis, Aviva Investors Multi-Strategy (Aims) fund returned -0.1%, with Gars returning -1.4% and Invesco’s Targeted Returns fund 0.9% . The bank noted that all three funds have missed their target returns.

For Aviva, RBC calculated that flows continued to be in negative territory in September, with £0.2 billion of net outflows over the month and £1.3 billion in net outflows year-to-date in 2018.

It estimated that Aims had AUM of £11.3 billion at the end of September, down from the end of 2017 level of £12.6 billion.

In their note, RBC analysts Gordon Aitken and Kamran Hossain said: ‘We expect that investors are growing tired of multi-asset funds as they continue to underperform target returns, and in the cases of Aims and SLI Gars producing negative three-year returns.’

In the 14-page research note on SLA, RBC re-iterated its ‘outperform’ rating on the stock, despite again downgrading the price target, this time from 380p to 350p.

Aitken and Hossain outlined a number of factors explaining why they continued to predict outperformance relative to peer group, hailing the disposals of its insurance business to Phoenix which should have a ‘material positive impact on the surplus capital position’.

They said: ‘The merger and subsequent insurance disposals have resulted in a more pure-play asset management company, deserving of a higher multiple in line with asset management peers.

‘Further, surplus capital will likely be utilised to conduct asset management M&A in the US, thereby making the company even more global and asset management in nature.

The duo added that SLA’s Indian business remains underappreciated, believing the Indian market is a ‘well kept secret’.

The pair said: ‘We believe the Indian insurance market is at the beginning of a period of revival and new listing plans will highlight the value within SLA’s business.’

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