Complicated or clever?
There are other issues when it comes to filtering out the absolute return funds best suited to portfolios. While all multi-asset funds tend to buy a variety of different assets, from stocks and bonds to more esoteric fare, Gars and its peers also tend to “pair” trades, betting the fate of one asset against another.
An end-of-November update from the fund lists several conventional investments, from US equity exposure to positions in global real estate investment trusts. But other strategies are less straightforward. These include a play on US real yields versus Japanese interest rates, UK versus German duration, and Asian versus S&P variance.
While such strategies could pay off handsomely, and potentially offer exposure uncorrelated from traditional assets, their use raises questions for the high-profile absolute return names. That’s because they remain difficult for clients, and even some professional investors, to understand. Using a more convoluted strategy muddies the water for those trying to work out what has gone right or wrong with a portfolio, and how it could perform in different scenarios.
Providers, in fairness, have made concerted efforts to explain their strategies and how their investments have played out. But issues like these will continue to dog fund firms at a time when the absolute return approach is arguably needed more than ever.
Intermediaries and clients will undoubtedly show interest in the sector at this late stage in a bull market. But with plenty of disparate products on offer, taking the time to make the most suitable choice will prove worthwhile.
