The managers of Standard Life Investments’ Global Absolute Return Strategies (Gars) fund have bet on Brazil and Canada to help drive returns, after the strategy’s performance turned positive in July.
Following a period of poor performance, which has prompted consistent outflows, the multi-asset strategy has turned positive, according to the managers' latest update, returning 0.6% (net of fees) to investors over July.
However, over the long term, it is still lagging behind its benchmark. Over one and three years the fund's retail accumulation units returned -2% and -1.1% per annum respectively, trailing behind its six month Libor benchmark’s gain of 0.6%.
When compared to its peers the fund returned -2.7% over the 12 months to June, compared to the -0.5% average in the multi strategy sector. Over three years the fund delivered -4.4% while the sector average was 0.9%.
In the July update, Gars investment specialist Andrew Ford explained what the drivers of performance were and revealed two new positions that have been initiated.
He said that the team believes the Bank of Canada will adopt a more cautious approach to normalising monetary policy and have added a strategy ‘which expresses the view that interest rates in Canada are fully pricing the number of hikes likely to be delivered over the next couple of years’.
In Brazil, they added a government bond strategy as they do not expect the country’s central bank to raise rates, due to the growth and inflation outlook.
The managers also closed their short Eurostoxx 50 position as they believe the risk-return profile of the trade will be affected by ‘widening peripheral Europe spreads’.
At the same time, the team sold out of their Korean equity strategy which was initiated back in April 2017.
However, despite returns turning positive, there were still a number of positions that hurt performance over July, with the managers noting: ‘The portfolio’s emerging markets vs Brazilian equity strategy detracted from performance as Brazilian equities recouped some of the significant losses suffered in the second quarter.
'Our oil majors vs global equity position also contributed negatively. Commodities struggled during the month as concerns over demand-supply dynamics and the deteriorating global trade outlook weighed on oil and metals respectively.’
They added that the Australian interest rates exposure and the long Japanese yen vs Australian dollar positions also detracted from performance.
‘The portfolio’s Canadian interest rates strategy also contributed negatively as the Bank of Canada increased policy interest rates on the back of strong economic data.’
In contrast, the strategy’s allocations to the equity markets of Japan, US, Europe and emerging markets helped drive positive performance.
The update comes after Standard Life Aberdeen revealed that Gars suffered a net outflow of £5.3 billion over the first six months of the years. The most recent figure is in addition to the £10.7 billion withdrawn from the strategy in 2017.