Concentration of GARS’ return drivers remains a worry – Fundhouse

Added 12th April 2016

Rating firm Fundhouse has reaffirmed its concerns about the breadth of return drivers within SLI’s GARS fund.

Concentration of GARS’ return drivers remains a worry – Fundhouse

While quick to highlight that there remains a lot of positive evidence for the fund and that it has met its objectives (cash plus 5%, gross of fees) since inception and with low volatility, the research house notes that there are a number of biases within the fund that led it to retain its negative Tier 3 rating on the fund, following its annual review.

While the return from the multi-asset fund has been very good over the long term, in recent months the returns have been less than stellar. 

According to data from FE Analytics, over five years, the fund has returned 19%, but over one year it is down 6.5%. 

Quoting an excerpt from the full report, Fundhouse said, that having spoken to management about the fund’s approach, it would have expected to find that the portfolio has a diversified source of return, across the asset classes and that the returns of the fund would not be dominated by a few outlier strategies or asset classes.

It would also expect the risks being taken to be commensurate with the magnitude of return the fund receives.

Instead it said: “15 strategies (or ideas), out of 127 since inception, contributed the bulk of the returns, showing us that there major pay offs were concentrated. In addition, we found that bonds delivered a disproportionate amount of the upside, while absorbing a small part of the risk budget.”

Adding: “Equities and currency had the opposite effect – they delivered very low return , but absorbed substantial risk budget.”

According to Fundhouse, the evidence above acts against the fund’s central premise – diversification of returns. And, it asks: “It makes us wonder: should the historical primary return driver (income driven strategies) not deliver; there is seemingly little evidence of what alternatives the fund has to fall back on.”

In response to the report a spokesperson for SLI said: “From inception to the 2015 year-end, around 60% of the strategies within GARS delivered a positive return.  In our Multi Asset suite of products we take longer-term market views and combine them in such a way that our portfolios are resilient to unexpected market shocks. Over the very variable decade GARS has run this approach it has proved long-term to be a consistent way of meeting investors’ needs for good returns with very low levels of risk.”

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About Author

Geoff Candy

Group digital editor

Geoff Candy joined Portfolio Adviser as News Editor in May 2014. He has been a financial journalist and broadcaster since 2005 and, in that time has worked in both South Africa and the Netherlands, covering everything from high street retailers and construction companies to mining and insurance.



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