Summers has both strategic and tactical reasons to invest in absolute return funds at the moment. “Lots of our clients have an income requirement. Since you don’t want to load them up with too much equity risk to get dividends and bonds aren’t yielding a huge amount higher, this tends you towards absolute return,” he explains.
Within absolute return, his investments are concentrated in global macro and multi-strategy funds. “In global macro, we like certain hedge funds that aim to produce uncorrelated returns regardless of what’s going on in the equity markets,” he says.
In the multi-strategy space, Summers is a fan of the Aviva Investors Target Income Fund, because it generates a yield. “That’s quite unusual in the multi-asset space,” he says.
He also uses the Standard Life GARS Fund, but actually likes it new-born cousin, the Standard Life Global Focused Strategies Fund, better.
“It’s smaller and it tends to be slightly higher volatility, but with slightly less equity correlation. So although it’s got more risk, from a portfolio construction perspective it is good risk, because it’s less correlated to the rest of the portfolio,” he explains.
“It’s doing a number of new strategies, more idiosyncratic strategies and more micro trades, which is interesting because it is an added source of alpha. The downside to it is though that it has a shorter track record,” he concludes.
Click here to see part one of the interview, in which Andrew talks about his preference for star managers.