The lead manager of Aberdeen Standard Investments Global Absolute Return Strategies is set to leave the fund in 2019, and his replacement is new to the firm. The change creates uncertainty in both the team structure and its ability to efficiently execute the process over the long term. The fund’s Morningstar Analyst Rating is downgraded to Neutral from Bronze as a result of the turnover.
Guy Stern, who has led this global macro strategy since 2013 and has been a key team member since 2008, is set to retire and will be replaced by Aymeric Forest in February 2019.
Stern is the latest in a string of high-level departures from the team dating back to 2012, when portfolio manager David Millar left, shortly followed by Euan Munro in 2013. Both left for rival firms.
The continued turnover at the top of the group has been a concern, and the passing of the mantle to a new joiner increases uncertainty about the team’s capability to turn around this large and struggling strategy. Forest joins from Schroders, where he was the head of the global multi-asset income group. His multi-asset experience is a plus, but he’ll need time to settle in and make the most of a large team of 60 members who feed their best ideas into this strategy.
The firm also announced the promotion of three senior investment professionals to the global absolute return portfolio management team, bringing the total to eight. This should help continuity over the short term, but it will take time for Forest to make his imprint on the team, and there’s the risk that the decision-making process will become unwieldy. The fund’s Process rating has also been downgraded to Neutral as a result of the uncertainty around its long-term execution and efficacy. The strategy’s returns over the trailing five years are far off from its Libor plus 5% target.
Fund Management Process Unchanged
The team has a multifaceted way of constructing its portfolio. First, all investment ideas are grouped across seven asset-class buckets: equity, relative value equity, real estate, credit, interest rates, currencies, and volatility. Each group is limited to a maximum of 40% of aggregate stand-alone volatility; as at November 2018 equities and relative value were the largest exposures, followed by rates and currency.
This is in line with previous years, though over time relative value has gained prominence. There are a number of trades within each group at any point in time, with variable investment horizons.
At end-November 2018, the main positions by risk were long positions in global equity oil majors and Japanese equities. The largest fixed-income and currency positions were long Canadian yields, Australian short-term interest rates, and long Japanese yen versus Australian dollar. The largest relative value positions were US real yield versus Japanese rates, and emerging markets pitched against Brazilian equity.
The ideas are implemented through derivatives. At an individual position level, no trade can exceed 30% of aggregate stand-alone volatility. In general, the portfolio remains highly diversified. The total stand-alone volatility at end-November 2018 was approximately 13%. But after allowing for estimated strategies’ cross-correlation, forward-looking volatility was at the low end of the 4%-5% target.
The losses are not attributable to any single position but stem from a combination of factors. At the same time, outflows from the strategy have accelerated in 2018. Investors should let the dust settle around the transition before considering this fund, but given its longer-term successful history, it’s worth keeping an eye on.
