Performance has been weaker in recent years: the stated aim of the fund is to deliver a return of cash plus 5 per cent on a rolling three-year basis. Over the past three years to February 9, the fund lost 11 per cent.
It did outperform in 2020, when volatility was high, and it is a frequent argument used by absolute return fund managers that their product is designed to perform best in volatile times.
James Sullivan, head of partnerships at Tyndall Investment Management, says: “Gars is essentially now a global macro fund; those are very hard to get right, and not everyone is good at that. Gars seems to have made some bad macro calls and chosen poor themes to invest in.”
A glance at the top 10 holdings in the fund right now reveals a series of currency trades, including one that is long sterling, short dollar (that is, the fund will profit if sterling rises relative to the US dollar) and a similar trade involving sterling and the Brazilian currency.
Overall, the fund's largest 'long' exposure is to sterling, with 63 per cent of the investments performing better if sterling rises – that compares with net short positions in the Australian, Norwegian and Chinese currencies.
The largest individual position in the fund is a short-dated UK government bond, while a futures position in Italian government bonds is another top 10 holding.
Only one equity is listed among the top 10 holdings.
Rory Maguire is managing director at Fundhouse, an investment management firm that published a negative rating on the Gars fund in 2015.
He says: “When we reviewed the fund eight years ago, it had performed well and was very popular with clients.
"But the evidence suggested that there were question marks over the sustainability of these returns. We felt that they had a disproportionate gain from a few bond allocations when bond markets had delivered outsized gains to the market as a result of QE.
"Equally, we felt that they were not taking enough risk to achieve cash plus 5 per cent and looked destined to undershoot over time. What they are all trying to do is very low odds; high returns with low downside is very desirable, but not likely to be achieved over the long term.
"Although they had hit cash plus 5 per cent, we felt it was linked to the market environment more than their skill: markets were delivering high returns with low downside (again QE related). And finally, broader skill was not obviously evidenced here (across a wide set of asset classes).
