Bambos Hambi has added the TM Fulcrum Diversified Core Absolute Return fund to his Standard Life Investments MyFolio Multi Manager range – marking the first occasion it has seen the introduction of an absolute return portfolio other than Standard Life’s flagship offering. 
Hambi, head of fund of funds management at Standard Life Investments, tends to have a decent weighting to absolute return in his portfolio as he argues that such funds – with their focus on making positive returns in all market conditions – are growth assets rather than purely defensive ones.
Until recently, this exposure has come solely from the £26.8bn Standard Life Investments Global Absolute Return Strategies (SLI GARS) fund. For example, this absolute return behemoth accounted for 12.5 per cent of his £690.2m Standard Life Investments MyFolio Multi Manager III fund at the end of May.
However, the manager has introduced a new holding in this space.
“We have bought TM Fulcrum Diversified Core Absolute Return, which the first time we have gone outside the SLI GARS fund [when looking for absolute return products]. When we launched five years ago we reviewed the sector: it was a young sector and the fund that stood head and shoulders above everyone else was the SLI GARS fund,” Hambi said.
“But we have been looking to diversify exposure because we have big weightings in the absolute return space – it is a cornerstone of our portfolios. We’ve been doing quite a lot of work on a number of different companies and we decided to go with Fulcrum.”
The Fulcrum fund has been added to all five portfolios in the MyFolio Multi Manager range, albeit with much lower weightings that those in GARS; Standard Life Investments MyFolio Multi Manager III (which is the largest in the range) has 1.4 per cent in the new holding.
Source: FE Analytics
TM Fulcrum Diversified Core Absolute Return is built around a global multi-asset portfolio, which comprises between 20 and 30 positions that are focused on three to five macroeconomic themes, augmented by a number of satellite ideas.
Around half of Fulcrum Asset Management’s 50-plus employees are dedicated to research and risk management, with economists, strategists, specialist researchers and senior investment staff contributing to the fund’s investment process.
Hambi added: “The major reason is that we decided that it blends very well with our GARS holding. It does things differently and the underlying strategies are sufficiently distinctive to make it an effective complement to GARS. Its objective is inflation plus 3 to 5 per cent and it’s targeting volatility of 6 to 8 per cent.”
“It’s got a big team – we want big teams in this space, we want lots of sources of alpha. Most of the team are ex-Goldman Sachs and we’ve met all of them at various stages. We’ve spent hours looking at this fund – we had three or four meetings. The last one we had before we pulled the trigger took three hours and 20 minutes to make sure we really understood it and felt comfortable in buying it.”
Performance of fund vs sector and indices since launch
Source: FE Analytics
The graph above shows that TM Fulcrum Diversified Core Absolute Return has made a 1.43 per cent loss since its launch in November 2014, although it must be kept in mind that its performance target is over rolling five-year periods.
With annualised volatility of 5.10 per cent since launch, it has given investors a smoother ride than those from the FTSE All Share (10.27 per cent) and the Barclays Sterling Gilts index (8.74 per cent), although the average from the IA Targeted Absolute Return sector has only been 1.67 per cent.
But the fund’s underlying strategy has running since September 2008. Data from Fulcrum shows the total return between inception and the end of June 2016 was 33.6 per cent. Over the past five years, the annualised return has been 3.2 per cent although it has made a loss of 3.15 per cent on a 12-month view.
In light of the fund’s longer term record, Square Mile has given it an ‘A’ rating. The investment research consultancy said: “A lot of things can go wrong with a strategy such as this. The hedges could go against the fund or the market might not reward the team's directional and relative value calls.”
“That said, for such a strategy to work, it must have the right foundations and structures in place and in this instance, we believe the fund has a wellconstructed investment process, an experienced investment team, supportive resources, and a solid risk management framework. Many members of the team have impressive credentials as economists and investors. All this helps underpin our conviction in the strategy.”
As those following absolute return funds will know, Standard Life Investments Global Absolute Return Strategies has recently been hit by a number of negative quarters, which are uncharacteristic for the fund. However, it still in positive territory over three years.
Performance of fund vs sector and indices over 3yrs
Source: FE Analytics
The fund also made loss in the first quarters of 2016, as did the Fulcrum portfolio to a lesser extent.
When the two portfolios are combined in a 90 per cent / 10 per cent in favour of SLI GARS (the same as they are in MyFolio Multi Manager III), the losses over the year to date come to 4.01 per cent after the 2.02 per cent fall of the Fulcrum fund moderates the 4.22 per cent drop by GARS.
There is also a similar moderation in the maximum drawdown and annualised volatility that would have been incurred from holding GARS alone.
Hambi also suggested he could add further absolute return funds to the Standard Life Investments MyFolio Multi Manager range: “We continue to research the universe. As I mentioned, we’ve got big weightings in absolute return and it is always good to be diversified. We continue to do the work, we have a shortlist and we review it on a regular basis.”
“We are prepared to introduce other managers if we find the right manager that will complement what we have already. We are very happy with our holdings so [something new] will only ever go in if there’s a strong case for investing in it and if it complements what we have already.”
