The fund is quite unique and can be looked at a number of ways. Most people think of it has just being an international equity fund. The simple reason for that is because that’s the pigeon hole the research houses put it into.
But as both FundSource executive chairman David van Schaardenburg and Tower’s chief executive of investment business Paul Bevin say, it’s not an easy fit.
Why? Sure the fund invests in international shares, but it also uses trading funds and has the ability to go to 100% cash.
The fund has been described in a number of ways. One is that its allocation is essentially GAM’s house view on the markets. If it thinks that markets are going to tank and stay down then it has the option of moving to cash. This was evident about 18 months ago when its cash holding got up to around 20%.
Likewise GAM uses a series of trading funds in the mix and often these can include long/short positions.
One of the defining features of the fund is that it will give investors protection in a down market, but won’t give all the upside when there is roaring bull market going on.
This is shown by a look back at the fund's historical performance. It was at the bottom of the international shares league table when the US market was in full stride, but for the past couple of years it has been right at the top.
Because of its strategy it can be considered as an alternative to the capital protected funds which track the MSCI.
While it doesn’t have the capital protection, it does give investors protection through its ability to use trading funds and cash. The difference being that an investors doesn’t have to pay for the capital protection, and there is a reliance on GAM’s house view being right.
Bevin says there is another way of looking at it. He says you could call it a diversified fund because of its range of investments.
Maybe that is where it is unique as well. Traditionally diversified funds have been a mix of all the standard asset classes, shares (long-only), cash, bonds and property. However, a number of managers are recognising that some of these so-called alternative asset classes are in fact mainstream and they are now including them in their balanced funds.
GAM has done that ever since it brought the Global Gateway Fund to New Zealand nearly a decade ago.
Reinforcing the suggestion that is that the fund’s performance over the long term (not the short term) shows characteristics more similar to a high risk diversified fund as opposed to an international share fund.
But as Bevin pointed out in a roadshow last year many of the fund-of-fund hedge funds which importantly combine funds with different strategies, also produce outcomes which are similar to balanced funds.
No matter how you describe the fund some things are clear. When the fund was first brought to the market by New Zealand Asset Management, I wrote a story explaining that because of the fund’s structure investors would be protected from the falls when international sharemarkets went down, and they would have a reasonable ride on the way up. Looking back the fund has delivered what I was told.
Investors who have used it should be pretty happy with its performance – particularly in the past few years.
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