Featured providers:

Data/Book Store

Collateral:Securities Lending, Repo, OTC Derivatives and Future of Finance

Magazine

Standard Life Investments Recommends Absolute Return Approach

Posted: 15 Feb 2012

Adopting an absolute return or risk based approach to portfolio construction is “the best way” to safeguard against volatile markets this year, according to fund manager Standard Life Investments.

David Millar, UK-based investment director for multi-asset investing at Standard Life Investments, said that “considerable” market volatility into 2012 is the result of political and economic complexities and over the longer term, prolonged deleveraging in developed countries will impact growth and create the chance of more frequent recessions. In the short term, however, economic outlook will see stable to modestly rising oil prices and the risk that ultra low bond yields will rise over time as the world economy slowly recovers.

“Superannuation funds have traditionally hoped that strategic asset allocation, with a large proportion of the fund allocated to equities, will provide them with the cash-plus return outcomes they need to fund their members’ retirements,” Millar said. “In Australia this has worked relatively well until recently, however economic conditions have changed and investors need to adopt new strategies to constrain risk.

“Absolute return investing offers the potential for consistent, positive returns, providing investment managers with more scope to diversify and deliver returns from a variety of strategies. Cash, or inflation, is normally the benchmark with the target return set above this. This means the manager has the freedom to invest in different geographies and markets, investing wherever they see the best prospects.”

Standard Life Investments manages Standard Life Investments Global Absolute Return Strategies (GARS) Trust, which utilises a multi-asset, multi-strategy approach with an annualised target return of cash+ 5% (gross of fees) over a rolling 3 year period. The GARS Trust aims to meet this targeted level of return with less than half the investment risk associated with equity markets. Over the 2011 calendar year, the GARS Trust had a return of 8.1% with a volatility of 5%.

“Since the inception of the Australian GARS Trust in December 2009, the strategy has delivered an 11.3% annualised return before fees,” said Simone Bouch, Investment Director and Head of Business Australasia at Standard Life Investments. “While this is an impressive return in its own right, it is even more so given it was achieved with much greater stability than investing in equities. There is no doubt we are seeing increasing interest from Australian investors in absolute return strategies that have the ability to help stabilise portfolios and enhance investor wealth through arguably one of the most challenging times for financial markets.”

If you have any comments about this story or news tips, contact Christopher Gohlke in New York at cgohlke@globalcustodian.com or Janet Du Chenne in London at jduchenne@globalcustodian.com.