Global Absolute Return Strategies Fund

Transcription

1 Q Global Absolute Return Fund 30 September 2018 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 15,162.1m 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. Aberdeen Standard 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 % Q3 1 Yr Market Returns Global equity oil majors Japanese equity Emerging markets income US equity Global REITs Brazilian government bonds European equity banks High yield credit European equity Equity option premium UK equity Korean equity Directional Long JPY v AUD Canadian interest rates Australian forward-start interest rates Long USD v KRW Long USD v EUR currency options Short US interest rates Long INR v CHF Relative Value US real yields v Japanese interest rates Emerging markets v Brazilian equity UK v German duration US equity large cap v small cap US equity large cap v technology Swedish flattener v Canadian steepener EuroStoxx50 v S&P variance Asian v S&P variance HSCEI v FTSE variance European equity banks v Eurostoxx50 Oil majors v global equity FX Hedging FX hedging 1.4 Cash Cash Residual - Stock selection Total 13.1 Diversification 8.9 Expected Volatility 4.1 We calculated the totals using actual (unrounded) returns. We then rounded the figures for the purposes of this presentation.

2 Fund Performance * Price Indexed Sep-13 Mar-14 Sep-14 Global Absolute Return Mar-15 Year on Year Performance Sep-15 Mar-16 Sep-16 6 Month GBP LIBOR (Fund) and Thomson Reuters DataStream (Benchmark and Target) Mar-17 Sep-17 Mar-18 Sep-18 6 Month LIBOR +4.25% (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 in the chart 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 in the Other Fund Information section of the factsheet. For details of your actual charges please contact your financial adviser or refer to the product documentation. The performance comparator shown in the chart expresses the fund's performance target after deduction of Annual Management Charges. It is calculated as the annual equivalent of 6 Month GBP LIBOR +5% per annum over rolling 3 years after deduction of a Annual Management charges. The benchmark is 6 Month GBP LIBOR, a proxy for the returns of cash. Fund performance is shown after deduction of Annual Management Charge and expenses. The Performance s are calculated as the annual equivalent of the fund's Target less the relevant Annual Management Charge for each share class as outlined in the Other Fund Information section of this factsheet. (Fund) and Thomson Reuters DataStream (Benchmark and Target) 30/09/ /09/ /09/ /09/ /09/2014 Retail Fund Performance Institutional Fund Performance Platform One Month GBP LIBOR Retail Share Class Performance Institutional Share Class Performance Platform One Share Class Performance Cumulative Performance (Fund) and Thomson Reuters DataStream (Benchmark and Target) 6 Months 1 Year 3 Years 5 Years Retail Fund Performance Institutional Fund Performance Platform One Month GBP LIBOR Retail Share Class Performance Institutional Share Class Performance Platform One Share Class Performance

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) and Thomson Reuters DataStream (Benchmark and Target) Fund Information (continued) Fund Return Contribution From Benchmark Return Absolute Return Relative Return Stock Selection Contribution - - Market Risk Contribution 0.8 Total Fund Contribution to Total Return from Market Risk Contribution US equity 0.9 Japanese equity US equity large cap v small cap Short US interest rates High yield credit Contribution Emerging markets v Brazilian equity - Long INR v CHF - Canadian interest rates - European equity - Emerging markets income -

4 Quarterly Investment Review and Outlook Activity Seeking to refine the balance of risk within the portfolio, we switched the oil majors versus global equity strategy into an outright oil majors position, which we believe offers a better risk-reward profile. Similarly, within our European banks versus European equity strategy, we closed the short Euro Stoxx 50 leg in view of ongoing political developments in peripheral Europe and the likely impact it will have on this strategy. Equally, we exited our Korean equity strategy as, in our view, escalating global trade tensions and uncertainty over global growth would limit scope for positive surprises in the medium term. We opened a US equity large-cap versus technology position. We believe the technology sector faces more downside risk than the broader US stock market, given extended valuations, mounting competition and calls for greater regulatory scrutiny. Other new positions included a Canadian interest rates strategy, expressing the view that investors in Canada are fully pricing in the number of rate hikes likely to be delivered over the next couple of years. We expect the Bank of Canada to adopt a cautious approach as it returns to more normal monetary policy, given high levels of household debt and uncertain trade negotiations. We also added a position in Brazilian government bonds on grounds of their attractive yield. Elsewhere, we closed our short US interest rates strategy after it reached our return expectation. Turning to currencies, we opened a position preferring the US dollar over the Korean won, which we expect to provide some diversification benefits in the event of continuing global trade tensions. The position also provides an attractive carry component of return (where we profit from the interest rate differential between the US and Korea). We closed the long Indian rupee versus Swiss franc position, as the initial investment thesis for both currencies had weakened further. We expect higher oil prices and the lack of promised reforms will continue to weigh on the rupee. Meanwhile, the reemergence of political risks in the Eurozone will likely drive demand for safehaven assets such as the franc. Performance During the third quarter of 2018, the Global Absolute Return Fund returned % against the index return of %. Over the year to 30 September 2018, the Fund returned -1.6%, against the index return of 0.7%. The US equity market climbed steadily over the review period, boosted by upbeat economic newsflow, share buy-backs and tax cuts. Consequently, our US equity strategy delivered positive returns. Within this, US large-cap stocks moved higher, bolstered by the consumer and industrial sectors, while small-cap stocks lagged. This led to gains from our US equity largecap versus small-cap strategy. Our Japanese equity exposure was also rewarded. Japanese equities benefited from a weaker yen, corporate earnings growth and expectations that Japan s automobile industry will be relatively immune to ongoing trade tensions compared with other countries. In Canada, stronger-than-expected economic data boosted expectations that the central bank would raise policy interest rates in October. This hurt the Canadian interest rates position we introduced earlier in the quarter. Trade tensions and renewed strengthening of the US dollar raised concerns about emerging markets (EM), particularly those economies with heavy US dollar debt burdens. Investors worries were exacerbated by the unfolding economic crises in Turkey and Argentina, which sent their currencies plummeting and sparked fears of global contagion. As a result, our long Indian rupee versus Swiss franc currency pair contributed negatively. Our EM versus Brazilian equity position also dragged on performance, as Brazilian equities outperformed on the back of strong commodity prices. Outlook Our central expectation is for continued modest broad-based global growth, albeit with regional variations. Fiscal policy and the changing monetary policies of central banks will be important drivers of asset returns, especially as the pace of change in policies remains uncertain. The US is moving to a tighter monetary environment, albeit on a gradual incline. Improving data in Europe may reduce the European Central Bank s appetite for monetary easing. However, it will likely remain cautious in the near term given the elevated levels of uncertainty around the process of the UK s withdrawal from the European Union. Japan, meanwhile, is likely to remain on a loose monetary path. Geopolitical tensions remain elevated and, on many metrics, asset prices look expensive. We will seek to exploit the opportunities that these conditions present by implementing a diversified range of strategies across multiple asset classes.

5 Overview - charts below illustrate the performance of each strategy over the quarter US Equity Emerging Markets vs Brazilian equity Japanese Equity Global Equity Oil Majors While recent data from the US have been a little mixed, the overall picture remains one of robust economic growth. Inflation pressures remain relatively moderate, consumer confidence is at multi-year highs and employment growth is strong. Fiscal policy is clearly having a positive impact and monetary policy continues to be well telegraphed by the Federal Reserve, which is taking a steady approach to tightening. The growth impulse may have now peaked and we should expect some moderation, but equity earnings growth is still impressive and return expectations remain attractive. Trade policy is an area to watch, though we believe the positives currently clearly outweigh the negative impact of President Trump s recent aggression in this area. Japan is presently embarked on a unique monetary and fiscal policy experiment at the same time as progressing structural reforms to increase corporate accountability that domestic investors are pushing for. A weak yen, corporate earnings growth and the expectation that its automobile industry will be less exposed to ongoing trade tensions have resulted in a positive contribution from our Japanese equity strategy. The oil industry has cut costs considerably in recent years, reducing the oil price at which they are profitable. We believe that valuations for integrated oil companies those involved in exploration, production and distribution are highly attractive, with high free cash flow yields covering capital expenditure and significant scope for increases in dividends and share buybacks. In the short term, changes in the oil price will affect valuations. The strong performance of Brazilian equities in recent years has meant valuations are extended relative to history. This leaves the market vulnerable to underperformance relative to emerging markets (EMs) generally. The Brazilian government has a challenging reform agenda and we believe market expectations of delivery are too high given allegations of political corruption. The volatile economic and political situation in Brazil combined with turbulence across EMs generally and strong commodity prices have led to negative returns from our EM versus Brazilian equity strategy. However, we continue to believe the performance of Brazilian equities will reflect the country s challenging economic position and ongoing political uncertainty, driving positive returns from this strategy.

6 US Large vs US Small Cap Equity High Yield Credit Despite some sharp corrections in the technology sector, large-cap US equities posted significant gains. Worries around trade tensions moderated and positive economic data provided further impetus for healthy returns, with notable gains from the consumer and industrial sectors. By contrast, the more domestically oriented US small-cap stocks, with margins more sensitive to rising cost pressures, performed less well. Our US large-cap versus small-cap equity strategy was positive, as largecap stocks outperformed their small-cap counterparts in this environment Australian Short-term Interest Rates High yield credit is further up the capital structure of the corporate balance sheet than equities and risk-adjusted returns can be attractive. They also provide a substantial additional yield over cash and a positive outlook for corporate earnings provides support. Default rates may rise but they are likely to remain low. However, issuer selection is important in view of indications of investor overcrowding in the asset class. During the quarter, strong corporate earnings and economic growth data provided the impetus for healthy returns in high yield credit markets despite a backdrop of rising sovereign bond yields. As a result, our high yield credit strategy delivered positive returns Equity Option Premium We expect Australian short-term yields to fall amidst weak domestic data and from Australia s painful rebalancing away from being a resource-driven economy. Credit growth, including housing credit growth, is slowing while the house price index has fallen for a second consecutive quarter. While the Reserve Bank of Australia is relatively upbeat, it only expects a gradual improvement in wage growth and sees ongoing softness in unit labour costs. Investors that look to hedge their equity exposure typically use short-dated options (derivatives). Such demand pushes the cost embedded within these instruments upwards. Those investors able to take a longer-term view can benefit from this risk premium by selling such options. The view underlying this strategy is that realised volatility will remain significantly lower than that priced into options markets. This was the case during the quarter, leading to a positive return for this strategy.

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 Aberdeen**. 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 Aberdeen** 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 Aberdeen means the relevant member of the Standard Life Aberdeen group, being Standard Life Aberdeen 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. Aberdeen Standard Investments is a brand of the investment businesses of Aberdeen Asset Management and Standard Life Investments. 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 trainin Standard Life Aberdeen INVRT U222