Global Absolute Return Strategies Fund

Transcription

1 Q Global Absolute Return Fund 30 June 2017 The Standard Life Investments Global Absolute Return Fund aims to provide positive investment returns in all market conditions over the medium to long term. The fund is actively managed, with a wide investment remit to target a level of return over rolling three-year periods equivalent to cash plus five percent a year, gross of fees. It exploits market inefficiencies through active allocation to a diverse range of market positions. The fund uses a combination of traditional assets (such as equities and bonds) and investment strategies based on advanced derivative techniques, resulting in a highly diversified portfolio. The fund can take long and short positions in markets, securities and groups of securities through derivative contracts. Past performance is not a guide to future returns and future returns are not guaranteed. The price of assets and the income from them may go down as well as up and cannot be guaranteed; an investor may receive back less than their original investment. The fund will use derivatives extensively to reduce risk or cost, or to generate additional capital or income at low risk, or to meet its investment objective. Usage of derivatives is monitored to ensure that the fund is not exposed to excessive or unintended risks. The value of assets held within the fund may rise and fall as a result of exchange rate fluctuations. Unit Trust Absolute Return Fund Quarterly Fund Manager Multi Asset Investing Team Fund Manager Start 29 Jan 2008 Launch Date 29 Jan 2008 Current Fund Size m Base Currency GBP IA Sector Targeted Absolute Return Benchmark Target 6 Month GBP LIBOR 6 Month GBP LIBOR +5% per annum over rolling 3 year periods, gross of fees This document is intended for use by individuals who are familiar with investment terminology. To help you understand this fund and for a full explanation of specific risks and the overall risk profile of this fund and the shareclasses within it, please refer to the Key Investor Information Documents and Prospectus which are available on our website Please note that the Portfolio Risk and Return Analysis table is only updated on a quarterly basis. Standard Life Investments has not considered the suitability of investment against your individual needs and risk tolerance. If you are in any doubt as to whether this fund is suitable for you, you should seek advice. An adviser is likely to charge for advice. We are unable to provide investment advice. Fund Information * Quarterly Portfolio Risk and Return Analysis Strategy Stand-alone Risk Contribution to Returns % Weighting (risk based %) Exposure % Q2 1 Yr Market Returns European equity US equity Global REITs US investment grade credit Emerging markets income Korean equity High yield credit UK equity EU corporate bonds Japanese equity Pacific Basin ex Japanese equity Directional US real yields Long INR v CHF Long JPY v KRW Australian forward-start interest rates Long USD v GBP Long SEK v EUR US front end steepener Long INR v KRW Long equity variance Long USD v EUR Closed Relative Value US equity banks v consumer staples UK v German duration Emerging markets v Brazilian equity HSCEI v FTSE variance Asian v S&P variance EuroStoxx50 v S&P variance Australian v US duration Closed FX Hedging FX hedging Cash Cash Residual Stock selection Total Diversification 8.8 Expected Volatility 5.4 Should you require more information regarding the Physical Allocation please use contact numbers shown. All information in this table is based on gross returns.

2 Fund Performance * Price Indexed Jun-12 Dec-12 Jun-13 Dec-13 Global Absolute Return Jun-14 Dec-14 Jun-15 6 Month GBP LIBOR (Cash Benchmark) Dec-15 Jun-16 Dec-16 Jun-17 6 Month LIBOR (5% performance target less 0.75% management fees) The performance of the fund has been calculated over the stated period using bid to bid basis for a UK basic rate tax payer. The performance shown is based on an Annual Management Charge (AMC) of 0.75%. You may be investing in another shareclass with a higher AMC. The charges for different share classes are shown later. For details of your actual charges please contact your financial adviser or refer to the product documentation. Fund performance is shown after deduction of management fees and expenses. The performance comparator expresses the fund's performance target less management fees. It is calculated as the annual equivalent of 6 Month GBP LIBOR +5% per annum over rolling 3 year periods less 0.75% management fees. The cash benchmark is 6 Month GBP LIBOR. (Fund) and Thomson Reuters DataStream (Benchmark) and FactSet (Target) Year on Year Performance (Fund) and Thomson Reuters DataStream (Benchmark) and FactSet (Target) 30/06/2017 (%) 30/06/2016 (%) 30/06/2015 (%) 30/06/2014 (%) 30/06/2013 (%) Retail Fund Performance Institutional Fund Performance Platform One Month GBP LIBOR Retail Comparator - 6 Month GBP LIBOR +3.7%, prior to 01/04/2016 then 6 Month GBP LIBOR +3.5% Institutional Comparator - 6 Month GBP LIBOR Platform One Comparator - 6 Month GBP LIBOR Cumulative Performance (Fund) and Thomson Reuters DataStream (Benchmark) and FactSet (Target) 6 Months (%) 1 Year (%) 3 Years (%) 5 Years (%) Retail Fund Performance Institutional Fund Performance Platform One Month GBP LIBOR Retail Comparator - 6 Month GBP LIBOR +3.7%, prior to 01/04/2016 then 6 Month GBP LIBOR +3.5% Institutional Comparator - 6 Month GBP LIBOR Platform One Comparator - 6 Month GBP LIBOR

3 Fund Performance * (Continued) Note: Past Performance is not a guide to future performance. The price of shares and the income from them may go down as well as up and cannot be guaranteed; an investor may receive back less than their original investment. For full details of the fund's objective, policy, investment and borrowing powers and details of the risks investors need to be aware of, please refer to the prospectus. For a full description of those eligible to invest in each share class please refer to the relevant prospectus. Fund performance is shown after deduction of management fees and expenses. The performance comparator expresses the fund's performance target less management fees. It is calculated as the annual equivalent of 6 Month GBP LIBOR +5% per annum over rolling 3 year periods less management fees shown in the table. The cash benchmark is 6 Month GBP LIBOR. Fund Information (continued) Fund Return Contribution From Benchmark Return Q2(%) Absolute Return Q2 (%) Relative Return Q2(%) Stock Selection Contribution Market Risk Contribution 0.9 Total Fund Contribution to Total Return from Market Risk Contribution (%) US investment grade credit 0.4 Korean equity Emerging markets v Brazilian equity Global REITs European equity Contribution (%) Long USD v EUR - Long equity variance - Long INR v CHF - Long USD v GBP - Long SEK v EUR -

4 Quarterly Investment Review and Outlook Activity We closed our Australia versus US interest rate strategy and introduced the US front end steepener, a US relative interest rate strategy. This new position complements other exposures in the portfolio that seek to benefit from an improving US growth and inflation outlook. We added exposure to Korean equities, aiming to profit from South Korea s improving domestic situation and the ongoing recovery in global trade. We opened an emerging markets income strategy to benefit from increasingly positive sentiment towards the region and demand from income-seeking investors. We funded this from euros and so closed our position preferring the US dollar to the euro. We opened a currency pair preferring the US dollar to the British pound. The upside potential of the pound appears limited given the uncertainty of Brexit negotiations. Performance During the second quarter of 2017, the Global Absolute Return Fund returned 1.2% gross against the index return of %. Over the year to 30 June 2017, the Fund returned 3.4% gross, against the index return of %. Politics and central bank action remained dominant market forces. Fears about the future of the European Union (EU) were allayed with the election in May of moderate, pro-eu candidate Emmanuel Macron as French president. In the UK, Prime Minister Theresa May s election gamble backfired as her Conservative party lost its majority, leaving the government in an enfeebled negotiating position ahead of Brexit talks. Meanwhile the US Federal Reserve (Fed) raised interest rates for the second time this year. The Bank of England indicated it too might consider raising rates later in 2017 should the economy remain buoyant. Similarly, responding to favourable economic newsflow, the European Central Bank (ECB) alluded to a possible tapering of its monetary support programme. Central bank stimulus programmes have provided a substantial boost to both equity and bond markets in recent years. Therefore, the prospect of reduced central bank support led to a general decline in equity and government bond markets at quarter-end. However, credit markets remained firm, supported by improving fundamentals and persistent demand from yield-seeking investors. As a result, our US investment grade credit strategy was among the top performers. Similarly, our exposure to REITS (Real Estate Investment Trusts) was advantageous, as investors sought the high dividend income offered by this asset class. Our exposure to Korean equities was rewarded, along with our relative value position preferring emerging market equities over Brazilian equities. The latter market was hit by fresh allegations of corruption against President Michel Temer, casting doubt on his ability to implement much-needed economic reforms. Our US real yields strategy was flat over the quarter. Designed to profit when US inflation expectations rise, inflation expectations in fact retreated owing to weaker oil prices and doubts over the Trump administration s timeline for stimulative economic policies. A number of our currency positions delivered negative returns. The US dollar weakened as investors adopted a more moderate view of the likely pace of fiscally led US growth. By contrast, the euro was bolstered by favourable economic indicators and receding political risk. Consequently, our currency pairs favouring the US dollar and Swedish krona over the euro detracted from performance. Also negative was our position preferring the Indian rupee to the Swiss franc, as investors took profits on the rupee. Market volatility remained subdued over the quarter, penalising our equity variance strategy. Outlook The global economy is showing signs of strengthening. Nevertheless, we expect growth to remain sub-trend and patchy by historical standards, with regional variations. Robust growth in the US may be further boosted by President Trump s progrowth agenda. Activity in Europe continues to pick up and unemployment has been falling rapidly across the Eurozone. In the UK, we expect inflation to continue impacting consumption patterns and this will tend to slow the momentum of the economy, while Brexit negotiations present uncertainty to investors. Recent political developments, particularly in the US and the UK, have increased the level of uncertainty. For instance, should the US adopt more protectionist trade policies, global growth would be adversely impacted. For a portfolio that is built to be durably diversified, we expect this environment of heightened change to present additional opportunities for our managers, given the flexibility of our mandate and our long investment timeframe.

5 Overview - charts below illustrate the performance of each strategy over the quarter Korean Equity Emerging markets vs Brazilian equity US Equity Banks vs Consumer Staples US Investment Grade Credit Korean equity earnings have begun to grow faster than forecast, owing in large part to the accelerating global economy. This has sparked a recovery in export growth, which has broadened to most sectors. Companies have focused on cost-control and productivity over the last five lean years. After successive disappointments, market expectations are now muted. This leaves considerable scope for further positive earnings surprise as high operational leverage kicks in. The strong performance of Brazilian equities through 2016 left valuations stretched relative to history. This leaves the market vulnerable to underperformance relative to emerging markets more broadly. The Brazilian government has a challenging reform agenda while also trying to contend with allegations of political corruption and we believe market expectations of delivery are too high. Our US equity banks versus consumer staples strategy seeks to exploit the valuation gap between banks and consumer staples. Banks continue to look cheaply rated compared with consumer staples. In our view, the relative earnings prospects of the two sectors do not justify such a wide valuation difference. As beneficiaries of increased economic activity and rising interest rates, the banks should outperform consumer staples. As part of this, increased consumer and business confidence should fuel higher loan demand and global merger and acquisition activity, which will support the banks. Heavy issuance of long-dated US corporate bonds, much of it related to merger and acquisition activity, had created oversupply, pushing valuations to extreme lows. Valuations have now started to return to more normal levels. US long-dated investment-grade bonds offer attractive yields and can be a good alternative to highyield bonds for income-seeking investors.

6 US Real Yields UK vs German Interest Rates Long Japanese yen vs Korean won Long Swedish krona vs Euro Our US real yields strategy seeks to benefit from rising inflation in the US. While there is still a large degree of uncertainty over what fiscal policies we might expect from President Trump s administration, the shift away from monetary support towards fiscal stimulus and higher government spending will likely increase inflationary pressures. This position seeks to benefit from convergence in the policy outlook and economic developments of the UK and Germany over the medium term. The UK economy faces a number of challenges. The fall in the pound has started to push up inflation, squeezing real wages and curbing consumer spending. Business investment may be dampened by uncertainty over Brexit. We expect these factors to lead to a convergence of UK and European 10-year interest rates. This intra-asian currency pairing preferring the Indian rupee over the Korean won should help cushion against the risk of an Asian/emerging market sell-off. Additionally, it benefits from the attractive interest-rate differential between the two economies. Korea is exposed to ongoing China-related stresses, which are likely to undermine the won. By contrast, India is more domestically focused. We expect the rupee to be supported by India s attractive growth prospects, underpinned by improving economic fundamentals. Our preference for the Swedish krona over the euro is predicated on our expectation that the Swedish economy will grow robustly and outpace the cyclical upturn in the Eurozone. Indeed, Swedish economic indicators have improved and, as a small open economy with a competitive exchange rate, Sweden is well-placed to take advantage of accelerating global trade and production. Sweden should emerge from low inflation more quickly than the Eurozone, justifying further krona appreciation against the euro.

7 *Any data contained herein which is attributed to a third party ("Third Party Data") is the property of (a) third party supplier(s) (the Owner ) and is licensed for use by Standard Life**. Third Party Data may not be copied or distributed. Third Party Data is provided as is and is not warranted to be accurate, complete or timely. To the extent permitted by applicable law, none of the Owner, Standard Life** or any other third party (including any third party involved in providing and/or compiling Third Party Data) shall have any liability for Third Party Data or for any use made of Third Party Data. Past performance is no guarantee of future results. Neither the Owner nor any other third party sponsors, endorses or promotes the fund or product to which Third Party Data relates. **Standard Life means the relevant member of the Standard Life group, being Standard Life plc together with its subsidiaries, subsidiary undertakings and associated companies (whether direct or indirect) from time to time. FTSE, "FT-SE ", "Footsie ", [ FTSE4Good and techmark] are trade marks jointly owned by the London Stock Exchange Plc and The Financial Times Limited and are used by FTSE International Limited ( FTSE ) under licence. [ All-World, All- Share and All-Small are trade marks of FTSE.] The Fund is not in any way sponsored, endorsed, sold or promoted by FTSE International Limited ( FTSE ), by the London Stock Exchange Plc (the Exchange ), Euronext N.V. ( Euronext ), The Financial Times Limited ( FT ), European Public Real Estate Association ( EPRA ) or the National Association of Real Estate Investment Trusts ( NAREIT ) (together the Licensor Parties ) and none of the Licensor Parties make any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE EPRA NAREIT Developed Index (the Index ) and/or the figure at which the said Index stands at any particular time on any particular day or otherwise. The Index is compiled and calculated by FTSE. However, none of the Licensor Parties shall be liable (whether in negligence or otherwise) to any person for any error in the Index and none of the Licensor Parties shall be under any obligation to advise any person of any error therein. FTSE is a trade mark of the Exchange and the FT, NAREIT is a trade mark of the National Association of Real Estate Investment Trusts and EPRA is a trade mark of EPRA and all are used by FTSE under licence. Risk Factors The fund invests in securities which are subject to the risk that the issuer may default on interest or capital payments. The fund price can go up or down daily for a variety of reasons including changes in interest rates, inflation expectations or the perceived credit quality of individual countries or securities. The fund invests in equities and equity related securities. These are sensitive to variations in the stock markets which can be volatile and change substantially in short periods of time. The fund may invest in emerging market equities and / or bonds. Investing in emerging markets involves a greater risk of loss than investing in more developed markets due to, among other factors, greater political, tax, economic, foreign exchange, liquidity and regulatory risks. Investing in derivatives carries the risk of reduced liquidity, substantial loss and increased volatility in adverse market conditions, such as a failure amongst market participants. The use of derivatives will result in the fund being leveraged (where economic exposure and thus the potential for loss by the fund exceeds the amount it has invested) and in these market conditions the effect of leverage will be to magnify losses. The fund makes extensive use of derivatives. The fund invests in high yielding bonds which carry a greater risk of default than those with lower yields. All investment involves risk. This fund offers no guarantee against loss or that the fund's objective will be attained. Inflation reduces the buying power of your investment and income. The fund could lose money if an entity (counterparty) with which it does business becomes unwilling or unable to honour its obligations to the fund. In extreme market conditions some securities may become hard to value or sell at a desired price. The fund could lose money as the result of a failure or delay in operational processes. Useful numbers - Investor Services Call charges will vary. Standard Life Investments Limited is registered in Scotland (SC123321) at 1 George Street, Edinburgh EH2 2LL. Standard Life Investments Limited is authorised and regulated by the Financial Conduct Authority. Calls may be monitored and/or recorded to protect both you and us and help with our training Standard Life INVRT U222