Standard Life sees surge in appetite for multi-asset
Like many of its competitors, Standard Life Investments has also seen an upsurge in demand for its multi-asset solutions. Its SICAV absolute return fund has seen significant inflows this summer.
Having started out with just £1bn in multi-asset strategies in its own pension fund a few years ago, the firm has grown its capabilities in global absolute return strategies to £19.2bn.
Its investment approach hinges on achieving maximum diversification in the portfolio. As a result, year to end of June both the retail and institutional funds have returned over 7%, well above the LIBOR six month return rate of 1.3%.
Guy Stern, head of multi-asset investing, explains it is not simply about “slamming together lots of asset classes” in the hope of achieving diversification.
“The definition of diversification is not just buying a bunch of things. Too many standard asset classes that are widely available to investors are not actually that different. We don’t want to just access the embedded risk premium of an asset class,” he says.
Stern’s team seeks to achieve “true diversification.” The investment process involves thinking in strategies, not just asset classes. Taking this top down approach allows the team to avoid being too dependent on one market or economic outcome.
This allows the fund to achieve returns similar to other asset classes with high return potential, while offering just a third of the volatility of these asset classes.
This responds directly to what investors are looking for in the current environment, Stern says. “Almost no investor needs to beat the S&P 500 by a set number of basis points. What they want is to avoid risk.”
A recent example of the approach paying off came last year, when the fund chose to go long Swiss holdings and short German stocks. The thinking behind this was that Swiss stocks were cheap, and the country’s main exports – pharmaceuticals and chocolate – represented a defensive investment theme. German stocks, on the other hand, were expensive and cyclical.
What the team had not taken into account, however, was that the Swiss franc strengthened significantly as investors began piling into the “safe haven” currency in response to the volatility in the Euro area. As a result, Swiss exports became very expensive and its companies lost a great deal of business.
Standard Life’s fund lost money on this theme, but implemented a shift in strategy to counter the losses. As the Swiss currency strengthened, the fund sold off its franc holdings, replacing it with the Norwegian krone.
Within nine days of this trade, the Swiss National Bank pegged the Swiss currency to the Euro to cheapen the franc.As a result, the fund achieved its three year target return within nine days.