The Standard Life Investments Global Absolute Return Strategies' (GARS) team has said the range of investment opportunities is set to grow in 2017, which will benefit its 'highly-diversified approach'.
The multi-asset team, headed up by Guy Stern (pictured), said it believed 2017 would be a better environment for the fund than the volatile 2016.
The firm suffered during 2016 and the team admitted that clients had been questioning the firm on what went wrong. During the first half of the year, the fund lost 4% including 3% during June after incorrectly positioning for the European referendum.
AN update rom the team said: "GARS produced a particularly negative return in the first half of 2016 that has only been partially mitigated by positive returns in the third quarter and a strong final quarter. Against a backdrop of gains for global equities and bonds, this left clients seeking explanations and action. While GARS does not target returns specifically in line with equities or bonds, its objective is to generate positive and substantial returns with low levels of risk."
However, the Targeted Absolute Return sector as a whole also had a difficult year with some absolute return funds and losing 20%.
The team now believes the current strategies in place on the £25.8bn GARS fund offer "attractive return potential" for its clients.
Fundhouse: SLI GARS return drivers pose concentration risk
"Collectively, we believe the strategies that form GARS today offer attractive return potential in 2017 and beyond. In addition, the risk characteristics of the portfolio are appealing, with around one-third of the expected volatility of equity markets globally.
"As we see the balance of monetary and fiscal policy support tip towards the latter, we expect the range of investment opportunities to continue to grow. This will not necessarily benefit equity and bond markets overall. However, it is precisely the kind of environment in which the highly-diversified approach we take in GARS should prove rewarding for investors."
Changes it has made going into 2017 include increasing US and European equities and reducing exposure to corporate bonds.
"We like European equities because of their attractive valuations compared with other developed markets, as well as the supportive low interest rate environment in Europe and strong potential for earnings upgrades.
"We also added to US equities in response to the improved US earnings outlook. This has been brought about by improved economic growth, the potential for lower corporate taxes, stronger oil price and for financial services companies, rising interest rates."
It also increased exposure to global REIT investment trusts which, it said, provide a high and reliable dividend yield.
SLI GARS' credit positions push Q3 performance back into positive territory
On the bond side, the fund has halved its exposure to European corporate bonds and cut its exposure to the UK corporate bonds. However, it was optimistic about the outlook for global high yield and US investment grade.
The SLI GARS fund has lost 1.6% over the year to 25 January, according to FE, versus returns of 2.3% by the IA Absolute Return sector.
