‘Ridiculously complex’: Top financier blasts UK’s biggest fund

It’s the biggest single stock market fund in Britain, holding nearly £20bn of small investors’ cash. Yet while the FTSE 100 has soared, hitting a record high this week, the fund, managed by Standard Life, has made nothing for investors for five years. Now Alan Miller, husband of anti-Brexit campaigner Gina Miller and a senior figure in the fund management industry, is calling it “potentially one of the greatest mis-selling scandals in the UK”.

The fund is called Standard Life Global Absolute Return Strategies (Gars). It was launched in 2006 with a golden promise – a hedge fund for the masses that would make 5% a year more than savers would get from bank accounts and, crucially, without the usual volatility of the stock market.

In the early years the money gushed in. The UK’s biggest investment advisers, Hargreaves Lansdown, put Gars on to its “Wealth 150” list of top funds for small investors. Very quickly it became the UK’s top-selling fund.

But over the past five years the fund’s performance has dived. Someone who invested in Gars in May 2013 has seen their money grow just 0.7% since then, compared with the 43.4% gain in the FTSE All Share Index. Over the past year, as the FTSE 100 has reached a new peak, the fund has fallen by 2.8% in value. The returns on Gars are so poor that even if investors had left their cash in the bank five years ago at the current historically low deposit rates, they would have earned more.

Standard Life’s Gars v FTSE 100
Standard Life’s Gars v FTSE 100

“It has been marketed to advisers [to sell on to ordinary customers] and institutions alike on the basis of an impossible dream,” says Miller, pointing to the fund’s marketing material.

Standard Life tells investors that the fund “aims to provide positive investment returns in all market conditions over the medium to long term”. But Miller dismisses this as pure fantasy. “This is complete balderdash. How can any fund produce positive returns in all market conditions?”

The Gars fund uses derivatives to “short” some stocks and markets – in other words, make a bet that the price is going to fall – while going “long” in others. By any measure it is among the most complex funds sold to small investors in the UK, judged by its latest fund factsheet.

It tells investors that the fund is invested in a number of “relative value strategies”, including a “Swedish flattener v Canadian steepener”, while its “directional strategies” include “Long INR v CHF”. INR is the Indian rupee and CHF is the Swiss franc.

“It is incomprehensible,” says Miller. “I challenge that anyone, advisers or consultants, could possibly understand the strategies in which the fund participates.”

Alan and Gina Miller of SCM Direct.

Alan and Gina Miller of SCM Direct. Photograph: Julian Simmonds

Miller, who runs SCM Direct with his wife Gina, has been a constant thorn in the side of the fund management industry, campaigning against high charges. He describes Gars as “a busy fool”, racking up charges for investors by incurring significant dealing costs.

“In short, this is an expensive, ridiculously complex, derivative-based fund with significant trading costs and counterparty risks accompanied by a delusional aim.

“I am never sure which amazes me more – that the Financial Conduct Authority allows such a ridiculously complex fund to be sold to retail investors, or how many institutions and their advisers still invest in it given its recent performance?”

Standard Life investment director Chris Nichols rejects any suggestion of mis-selling. “Mr Miller is entitled to his opinion, but I am very confident we can face down any accusation of mis-selling. We have made every effort to ensure clients understand and certainly have never tried to dumb things down.”

He adds that until the end of 2015 Gars was meeting its targets, but that an unexpectedly “stretched and elongated period” in which interest rates have stayed low has hurt the fund. “It is our critical priority to restore confidence in the fund,” he says, adding that it remains popular with investors looking for a safety-first approach and low volatility.

What about the financial firms that sold the fund? Hargreaves Lansdown says it removed Gars from its recommended list in 2013, but insists it can still make sense within a “diversified portfolio”. It said: “It’s a plodder rather than a leaper and as such will endure periods when it looks pedestrian,” it said.

While Miller is the fund’s harshest critic, he is far from alone in observing its performance failings, and in recent year it has suffered significant outflows.

Brian Dennehy of FundExpert says: “We used to be supporters of this fund, but have been selling out for the last five years, with little remaining. It has always been difficult to understand what is precisely driving the fund at any one time. Even a cursory tracking of performance in recent years would have got you out of this fund. You didn’t need to understand what was under the bonnet, you just needed to observe that it had stopped moving forward.”

One group of advisers remain loyal to the fund. Standard Life has set up an advice business, called 1825, which has snapped up IFA firms around the UK. It said Gars accounts for “5% of the total portfolio fund allocations” made by 1825 advisers. Another group that heavily invests in Gars is Standard Life employees. Standard Life said: “The largest single investor within Gars continues to be Standard Life’s defined benefit scheme for employees.”


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