The downfall of Abrdn’s Global Absolute Returns Strategy (Gars) is a disappointing end to a once-successful fund. The fund, which was valued at £53bn in 2016, is now closing with a value of only £1.4bn after seven years of underwhelming performance. This has broader implications for fund managers and investors, especially considering that other funds with similar diversification-based strategies are still functioning.
Gars was designed to be a versatile fund that could perform well in any market conditions. However, achieving this is always a challenging task due to the inherent uncertainty of the future. Gars aimed to deliver returns of 5% above cash over a rolling three-year period by employing multiple strategies across different asset classes. While the fund initially met this target, it later experienced a significant failure. In 2022, the gross return was -9.1%, and for the first six months of 2023, it was -8.4%.
According to Amin Rajan, CEO of Create Research, the excessive marketing surrounding Gars created a false sense of a foolproof investment strategy. The closure of Gars highlights the importance of questioning flashy marketing tactics that often accompany trendy investment strategies. The Gars team invested in a variety of assets, including equities, bonds, interest rates, and currencies, based on short-term and long-term trends. They believed that this diversified approach was less risky than a traditional 60/40 equity-bond portfolio. While they initially found success by capitalizing on the bond bull market, they struggled to maintain momentum and suffered losses due to volatility and equity market positions.
Charlie Morris, former head of absolute return at HSBC, believes that the size of Gars should have been a warning sign. Delivering market-beating returns becomes increasingly difficult as assets grow. Morris believes that the Gars team became overly risk-averse, focusing too much on short-term capital preservation and neglecting their primary objective of generating profits. He emphasizes the importance of fund managers having the confidence to take risks and deliver alpha.
Charles Younes, head of manager selection at FE Fundinfo, explains that diversification is vital in any portfolio and that relying on just one fund, like Gars, is not enough. Gars’ clones established by Invesco and Aviva Investors have also underperformed. Numerous rival funds promise cash-plus or inflation-plus returns with lower volatility than a purely equity-based portfolio. However, these funds should not be lumped together, as each has its own unique market analysis approach.
Toby Nangle, former global head of asset allocation at Columbia Threadneedle Investments, warns against relying on managers’ self-appointed performance targets. The approaches of diversified growth strategies vary significantly, including exposure to different asset classes, volatility limits, cash holdings, short bets, and hedging against adverse currency movements.
Fundhouse, a research company, published a negative rating of Gars in 2014. It questioned the team’s investment skill and highlighted that the majority of Gars’ returns came from fixed-income related strategies, while the other proposed ideas added little value. Despite its shortcomings, Gars still outperformed the industry average in terms of positive returns.
Now, Abrdn has decided to merge Gars’ remaining £1.4bn assets into a renamed Diversified Growth and Income fund. This decision follows a review of its multi-asset team, which will result in the loss of at least 27 roles. Abrdn aims to deliver solutions that meet or exceed performance expectations and adapt to future challenges.
The recovery of trust from former Gars clients remains uncertain for Abrdn. Investors are reminded of the old adage that if something seems too good to be true, it probably is.
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