# Standard Life GARS Fund



## fionn2011 (29 Nov 2010)

Does anyone have a view on the Standard Life Global Absolute Returns Fund? It appears to be lower risk than managed funds yet producing reasonably good returns. AlsoStandard Life employees pensions are i believe invested in it which raises ones confidence.

Any thoughts?


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## mercman (29 Nov 2010)

Slightly off topic Standard Life's range of Investments are about the best, most upfront financial products available in the Irish market. No connection whatsoever and in fact have liquidated all my funds holdings with them.


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## taytoman (30 Nov 2010)

Mercman

Dare I ask why you have liquidated your investments with them?
Was planning to invest 20K with them
Agree their charges appear to be amongst the lowest for a fund


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## mercman (30 Nov 2010)

Quite simply I have liquidated ALL my investments held in Ireland due to previous investments I held with another large Financial Provider whence I was subjected to a number of unethical efforts to defraud me.


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## taytoman (30 Nov 2010)

Thank you for your frankness and clarification mercman


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## alpine (1 Dec 2010)

I switched my pension 50:50 between the GARS fund and another.  GARS seems to be up about 10% YTD or approxto 30% over the last three years.


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## voodoobazza (12 Dec 2010)

*Gars*

70% of GARS is curently invested in the Standard Life Managed Fund, i recently checked this with their UK managers.
Therefore as a retail investor you are paying Hedge Fund type AMC for a normal balanced managed fund.

Go look at a good ETF BOND Equity Mix depending on your ability to take risk.


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## GSheehy (15 Dec 2010)

voodoobazza said:


> *70% of GARS is curently invested in the Standard Life Managed Fund*, i recently checked this with their UK managers.


 
Can you post the text of the reply you got?


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## riddles (7 Jan 2011)

*GARS in Sterling*

I contacted standard life today and I was told they cannot sell this product directly it needs to be sold through a broker.

Does this means that access fees can vary or is there a standard charge.?

Also. Can you buy into the GARS fund in sterling as a way to protect against a euro collapse?

Finally - I have a pension fund in a low risk fund - its increased 2% ytd - at 36 - its held through invesco could I transfer this to something like GARS - standard life.

Thanks,

R


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## Chris (11 Jan 2011)

I took a look at this fund recently and decided not to use it for my pensio contributions. The reason for this decision was that it is a very complicated setup using other funds and derivatives. I was not able to get my head around it and I never invest in things I cannot fully understand. I am not saying that it is a bad product or investment, just that it is has a very complicated structure.


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## Rory Gillen (11 Jan 2011)

The Standard Life GARS fund is an Absolute Return Fund and anyone considering an investment in it needs to understand the risk profile of Absolute Return Funds.

In terms of asset classes, there are equities, property, commodities and government bonds. Hedge & Absolute return funds make up a separate asset class category as they attempt to generate positive returns in all market conditions. To the extent that they offer the prospect of an uncorrelated return to equities & property in particular then they have merit. But they are not the holy grail of investing and that is what I see them being promoted in Ireland as (not by Standard Life itself).

If Brendan has not issues I enclose a link to an article I recently wrote for the Financial Advisor magazine which outlines the pros & cons in greater details.

'Absolute Return Funds are not the Holy Grail of Investing'


Rory Gillen


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## riddles (14 Jan 2011)

Is it possible with GARS to just buy into the overall fund or does it need to be actively managed?

Also is it possible to buy into it in Sterling?

Thanks,
R


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## DK123 (30 Jun 2012)

*fund manager*

Who is the Gars fund manager.I like to know the record of the manager as well as the fund.


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## LDFerguson (30 Jun 2012)

deskelly said:


> Who is the Gars fund manager.I like to know the record of the manager as well as the fund.


 
It's run by the Multi-Asset Investment Team of Standard Life Investments.  The director in charge of that team is Euan Munro.


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## Marc (30 Jun 2012)

I have looked at this fund in considerable detail and I conclude that it is the Emperor's new clothes. A good marketing campaign but with no real substance.

The risk return trade off is equivalent to a 40% risk portfolio with 40% in real assets and 60% in fixed interest as can be seen clearly in the graph below:

[broken link removed]

The volatility of the fund is approx the same as short term gilts (up to 5 years) and when I tested the sterling institutional share class against uk 5 year gilts (which you can just purchase from State Street for 0.15%pa) the excess returns almost totally evaporate.

Now granted, there is some alpha on a discrete annual basis (1.68%pa on average) but the volatility of the alpha is quite high (11.46) from year to year meaning that it is hard to establish if the fund managers are doing well due to luck or skill. In fact, i'd need 186 years of retuns just to be 95% sure that they are really skilled so I conclude that I can't recommend anyone invests now on the off chance that these fund managers are skilled because none of us are going to live long enough to find out.


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## mercman (30 Jun 2012)

Marc said:


> A good marketing campaign but with no real substance.



Probably one of the best quotes I have ever read in relation to Investment funds. 

It fails me as to why investors do not take time to look beyond the colour brochures and fancy offices to see that Investment funds are a real way for Financial Institutions to assist investors pockets been emptied and for them to smile all the way to the Bank.

Does anyone really believe that Financial Providers really want or in fact care or are anyway happy to see Investors making money. They don't give a damn.

There is a role for the Private Investment Manager out there. Find one and make him /her your best friend.


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## offiah (30 Jun 2012)

voodoobazza said:


> 70% of GARS is curently invested in the Standard Life Managed Fund, i recently checked this with their UK managers.
> Therefore as a retail investor you are paying Hedge Fund type AMC for a normal balanced managed fund.
> 
> Go look at a good ETF BOND Equity Mix depending on your ability to take risk.



70% of gars is not invested in a managed fund.
It is invested in c30 diversified strategies with a target of long term equities (cash +5%) return at a half to a third of the risk (volatility).
The performance of the fund over the last 6 years clearly shows this. The fund is achieving it's target at a volatility of 6%. 
The ter is very competive for Irish investors and much cheaper than a hedge fund.


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## offiah (30 Jun 2012)

riddles said:


> I contacted standard life today and I was told they cannot sell this product directly it needs to be sold through a broker.
> 
> Does this means that access fees can vary or is there a standard charge.?
> 
> ...



GARS can be bought directly from Standard Life.


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## offiah (30 Jun 2012)

*Gars*



Marc said:


> I have looked at this fund in considerable detail and I conclude that it is the Emperor's new clothes. A good marketing campaign but with no real substance.
> 
> The risk return trade off is equivalent to a 40% risk portfolio with 40% in real assets and 60% in fixed interest as can be seen clearly in the graph below:
> 
> ...



Marc what exactly is invested in the strategic 40% risk portfolio? 
I think the key different here is GARS does not have a set Allocation to assets ie 40%/60% equity bonds split. It has a very dynamic diversified allocation to c30 strategies with an target of cash +5% over rolling 3 year periods with a volatility of between 4% and 8%. Thus the allocation to different strategies and assets has changed dramatically over the last 6 years, however the fund is achieving its target of long equity returns with about half to a third the risk (volatility) of equities.


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## Marc (30 Jun 2012)

I think a more pertinent question for investors is what exactly is in GARS? The strategic portfolios are long only portfolios of index funds based on a strategic asset allocation that hasn't changed dramatically since 2008 and which are rebalanced annually. Nice and simple nothing complicated. 

"Never invest in anything you can't illustrate with a crayon" - Peter lynch.

I can also provide audited report and accounts for each underlying investment fund. I therefore have a very good idea of my risk exposure at all times. I can't say than about GARS. There is too much ideosyncratic risk associated with the tactical allocation decisions being taken by the fund managers. Some of these bets will win and some will lose. But overall all that they are really doing is adding a layer of costs through additional turnover.

If we have broadly the same risk exposure, then over time I'll win. It's Aesop's fable of the tortoise and the Hare. As Bill Sharpe says its a mathematical certainty that I'll win.

I am aware of the marketing position regarding volatility but all that matters ex post is the realised volatility for an investor.

Over the 36 months ended may this year GARs had an annualised volatility of 5.64 which is within the target range granted.

But the 40% risk portfolio had a realised volatility of 5.15.

Source: Financial Express analytics

For investors who required a higher expected return they simply needed to take more risk. Investors looking for more capital security could select less risk exposure.

By contrast any tactical asset allocation fund will be constantly putting risk on and taking risk off. How am I as a financial planner to determine how much risk my clients are exposed to if the fund is designed to flap about in a wide range from 4 to 8%? Which is it 4 or 8? To put that into perspective 95% of the time if I am targeting an average return of 6%pa my range of returns is actually going to lie somewhere between plus/minus 8 and plus/minus 16% of that 6%pa.

It's not a precise enough tool.

This analysis is intended for educational purposes only and is not intended to represent a specific recommendation for investors. Prospective investors should always seek advice from a suitably qualified investment professional.


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## offiah (1 Jul 2012)

Marc said:


> I think a more pertinent question for investors is what exactly is in GARS? The strategic portfolios are long only portfolios of index funds based on a strategic asset allocation that hasn't changed dramatically since 2008 and which are rebalanced annually. Nice and simple nothing complicated.
> 
> "Never invest in anything you can't illustrate with a crayon" - Peter lynch.
> 
> ...



Marc I think the information on FinEx is incomplete. It seems GARS invests in underlying active long only internal portfolios however this is not solely were performance comes from as the fund uses derivatives. You need to look at the marketing material on standardLifeinvestments.com. These strategies have changed dramatically over the last 6 years.
GARS is a registered fund of their SICAV fund range which is audited. So if you do your research you will have a good idea of the risk exposures in the fund. 
The volatility range is between 4% and 8% however the fund is running 6 years now and the volatility has been 6%. Obviously it's not that simlple to look at volatility, other measures of risk need to look at - credit/counterparty risk, max drawdown and what the regulator looks for value at risk.


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## Marc (1 Jul 2012)

To be clear, I am not suggesting that information about historical positions in GARS isn't available.

I actually ran a download from Morningstar in April and at the time the largest position in the fund was 687,575,000 in cash or cash equivalents. My first observation is that is a very high annual fee for investors to pay to have over 8% of the fund in money market funds with interest rates at a 300 year low.

The second largest position was 447,907,000 invested in Standard Life's own European Equity fund. Again, that's a high fee to pay for over 5% in a European Equity fund which I can get from an ETF for 0.20%pa. But of course I am paying for the "added value" from the tactical asset allocation decisions made by the managers.
In this instance, of course, the managers are Standard Life in both cases.

At least this confirms the earlier point that a large part of the fund is actually just invested in long positions in Standard Life's own Managed funds. 

However, the real problem here is that  although the data I obtained was extremely detailed it was, of course, already out of date by the time I had looked at it. In a tactical fund, the managers will have already moved on the funds holdings so that any assessment I make at a given instant will be increasingly out of date as time moves on.

My last point is that the 13th largest holding in the fund at the time was an allocation of 69,936,000 to the Trafalgar Discovery Fund. This is listed as a Hedge Fund by Morningstar and seems to be a distressed assets fund and seems to be listed in the Cayman Islands although I can't be sure as there is no ISIN or CUSIP listed.

So, not only do I have the uncertainty associated with the asset allocation decisions and charges of Standard Life's managers, I am also having asset allocation decisions and charges applied by external managers.

I therefore repeat that I have no idea what this fund is invested in and if they are using Hedge Funds to be honest neither do Standard Life!


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## offiah (1 Jul 2012)

Marc I go back to my point that the information on non Standard Life sites, ie FinEx and MorningStar is incorrect. All monies in GARS is managed internally by Standard Life Investments. Thus there is no exposure to a Trafalgar Discovery Fund.
The allocations to internally managed active funds is to gain exposure to long only positions (ie European equities etc) but also to gain exposure to the alpha capabilities of these managers. Nearly all these strategies have a short position to reduce exposure to the long strategy (ie short European equities). Thus the fund gets exact liquid exposure to the strategy but also the alpha capabilities of the European equity manager. 
The fund has always had about a third or a little more invested in money markets. This is to cover collateral positions on the funds derivatives.
Hopefully that clears things for you?


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## mercman (1 Jul 2012)

voodoobazza said:


> Therefore as a retail investor you are paying Hedge Fund type AMC for a normal balanced managed fund.



offiah, as you know the facts of this fund, please advise commentary on this point, in order that persons are aware of the full facts before considering an investment.


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## Marc (1 Jul 2012)

To be clear here, I am not picking on Standard Life's GARS in particular and I am more than happy to have this discussion with any actively managed fund manager that wants to step up and have a debate.

But to sum up my understanding of the position that is being presented to me here.

GARS is a SICAV and subject to requirements to file audited reports and accounts. Excellent, fantastic and an absolute minimum requirement in my book to be able to make any kind of an assessment of an investment fund. To their credit here Standard Life are therefore light years ahead of a typical unit linked fund operating in Ireland which are not currently required to file audited accounts.

Now, Morningstar pick up their fund holdings data from the latest set of accounts.

I pay for a full holdings data licence from Morningstar.

"Full Holdings Data License

The Full Holdings Data License delivers the most recent portfolio holdings data to reveal a detailed view of an investment’s composition. This data feed, which includes the security identifier, sector, and region, is available for each of the investment types in the Morningstar database except hedge funds. Institutions can use this feed to help advisors and investors select an investment that fills a particular need, compare investments to avoid overlap, or develop accurate asset allocation models."

However, I am being told that in fact I can't rely on this information from external data providers such as Morningstar and that only Standard Life have accurate data on the positions in the fund.

Why is this? Whatever the explanation, at any point in time it isn't going to be clear what the real position is. Surely that is the definition of a tactical asset allocation model. The fund managers will be constantly adjusting their positions to reflect their view of the future. 

So here is my position:

If I can't assess how a fund actually works, then irrespective of how well it might have performed in the recent past, I have no business recommending it to anyone.

If it is the case that the information in the "public domain" really misrepresents a strategy then it is my contention that it is not possible for a professional adviser to assess the fund and as my client's fiduciary I have no business recommending it to anyone.

It might be that this is just an extremely complex strategy making use of long-short strategies trading pairs of asset classes and utilizing derivitives to enhance returns secured on a large cash liquidity position. Maybe its just that i'm not that clever and I can't understand how it works. But my point is that if I can't explain to my Mother how a strategy works, I have no business recommending it to her and if I can't explain to a Judge in court how I made an assessment of the suitability of a particular fund , then I have no business recommending it to anyone. Back to the Peter Lynch quote from earlier. Higher complexity doesn't necessarily lead to good outcomes for investors.

To conclude, I'm not looking for an explanation of how the strategy works. The more it is "explained" to me the less and less I would ever be interested in it. 

Philosophically I believe that markets fundamentally work and that therefore a low-cost passive investment strategy is the best way to invest. Absolute return funds and hedge funds believe that markets are inefficient and are the opposite side of this position. 

If you believe what I believe you would never invest in an actively managed strategy and therefore GARS isn't the way to go.

If you don't believe what I believe then you need to be able to identify which are going to be the winning strategies and who the winning fund managers are going to be in the future. Good luck. You are going to need it and my guess is so are they.


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## offiah (2 Jul 2012)

mercman said:


> offiah, as you know the facts of this fund, please advise commentary on this point, in order that persons are aware of the full facts before considering an investment.



Typical Hedge fund type Fees are 2% with a 20% performance fee. Whereas your average Managed fund is 1% AMC. 
The AMC on the GARS fund through Standard Life products is 1.35% and the TER is 1.4%, which is very competitive for what you get.

Is is very debatable whether a managed fund will ever deliver equity like returns. The performance will more than likely be less than cash +5%, probably closer to cash +4% and the risk levels will be somewhere between 10% and 15% volatility. 

So if the GARS fund can deliver cash +5% (equity like returns) with volatility of between 4% and 8% (currently 6%) then the fee is well worth paying.

GARS is definitely not a normal balanced managed fund.
GARS net of fees has returned over 34% since its launch in Ireland (sep 2008). Over that time period a balanced managed fund on average is up 7%. 

Hope that helps?


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## offiah (2 Jul 2012)

Marc, MorningStar are not showing all the relevant information on GARS. MorningStar seem to be showing the physical allocation of assets in the fund, which doesn't show the strategies in the fund after the derivative overlays. This is a true reflect of the strategies in the fund.
GARS does use pair trades or relative value strategies however these are at the macro level and are not just equity strategies, they could be for credit and government bonds and also volatility strategies. The fund also uses directional and market returns to aim to deliver low risk positive performance in all investment environments. 
How GARS works is taking a 3 year investment outlook on its strategies. The fund managers believe that this captures return more consistently from demonstrable market inefficiencies and once an investor is patient then these opportunities can be exploited. Also make sure strategy selection is based on return, diversification and liquidity. 
Of course there is room for low cost passive investment. However low cost does not mean strong returns.


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## mercman (2 Jul 2012)

offiah said:


> Of course there is room for low cost passive investment. However low cost does not mean strong returns.



This all very very Interesting. However for the average normal Investor, how are they to read the matters you are stating. I doubt if most of the brokers selling this product understand the strategies and the high spec talk that you have offered. 

Basically I believe they are giving the Investment Community short change when they request information. The correct people to sell such a product are thin on the ground in this country. This might be a good product but in the case of the science you have quoted, there are many less complicated products on offer. They need to state their play in writing in their promotional material before an Investor makes a decision, not after when it is to late


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## offiah (2 Jul 2012)

The Standardlifeinvestments.com sites have lots of good information on the fund, whether you are looking to invest or a current investor.


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