The rating agency found the bulk of returns have come from its fixed income trades, with equities and relative value contributing very little.
While quick to highlight that there remains a lot of positive evidence for the fund and that it has met its objectives (cash plus 5%, gross of fees) since inception and with low volatility, the research house concluded its concerns about the fund’s investment approach are such that it is retaining its negative Tier 3 rating on the fund, following its annual review.
While the return from the multi-asset fund has been very good over the long term, in recent months the returns have been less than stellar.
According to data from FE Analytics, over five years, the fund has returned 19%, but over one year it is down 6.5%.
Quoting an excerpt from the full report, Fundhouse said, that having spoken to management about the fund’s approach, it would have expected to find that the portfolio has a diversified source of return across asset classes and that the returns of the fund would not be dominated by a few outlier strategies or asset classes.
It would also expect the risks being taken to be commensurate with the magnitude of return the fund receives.
Instead it said: “15 strategies (or ideas), out of 127 since inception, contributed the bulk of the returns, showing us that there major pay offs were concentrated. In addition, we found that bonds delivered a disproportionate amount of the upside, while absorbing a small part of the risk budget.”
Adding: “Equities and currency had the opposite effect – they delivered very low returns, but absorbed substantial risk budget.”
According to Fundhouse, the evidence above acts against the fund’s central premise – diversification of returns. And, it asks: “It makes us wonder: should the historical primary return driver (income driven strategies) not deliver? There is seemingly little evidence of what alternatives the fund has to fall back on.”
In response to the report a spokesperson for SLI said: “From inception to the 2015 year-end, around 60% of the strategies within GARS delivered a positive return. In our Multi Asset suite of products we take longer-term market views and combine them in such a way that our portfolios are resilient to unexpected market shocks. Over the very variable decade GARS has run this approach, it has proved long-term to be a consistent way of meeting investors’ needs for good returns with very low levels of risk.”
