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How multi-strategy funds are faring as coronavirus slashes returns

[March 27, 2020] By Simon Jessop

LONDON (Reuters) - Just one of the world's biggest multi-strategy funds available to retail investors is in the black for the year after coronavirus panic saw markets fall across the board, data from Morningstar showed.

Multi-strategy funds vary in remit, but generally have a much wider range of assets to choose from when investing, something that in theory is meant to allow them to weather a downturn.

Markets have been roiled in recent weeks as fears grew that efforts to contain the coronavirus, including telling people to stay at home, could precipitate a global recession.

Despite an injection of trillions of dollars of monetary and fiscal stimulus into the global economy by central banks and governments worldwide, volatility remains high and demand weak.

Performance data from the world's ten-biggest funds reported to analysis firm Morningstar - nine to March 23 and one to Feb. 29 - shows more conservative funds generally weathering the storm better than those that sought to take on more risk.

Market stresses to hurt funds included the blow-out in merger-arbitrage spreads, a seizing up of credit market liquidity and those betting on depressed market volatility, said Morningstar Senior Manager Research Analyst Francesco Paganelli.

For funds with a freer remit to roam across markets, pockets of safety could be found to help stem losses, including betting on falling stock prices, he added.

Best performing was the 9.1 billion-pound ($10.83 billion) Invesco Global Targeted Returns Fund, in pounds, the Morningstar data showed, up 0.5% in the year and down just 0.1% in March.

Like most of the funds, though, this leaves it some way from hitting its target return, in this case a gross return of 5% a year above the UK's three-month London Interbank Offered Rate over a rolling three-year period.

Since mid-February, the team had taken some risk out of the portfolio, but it was now "looking for new opportunities that the current market dislocation has thrown up", said Multi-Asset Portfolio Strategist Clive Emery.

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The floor of the New York Stock Exchange (NYSE) stands empty as the building prepares to close indefinitely due to the coronavirus disease (COVID-19) outbreak in New York, U.S., March 20, 2020. REUTERS/Lucas Jackson

Standard Life Aberdeen's Global Absolute Return Strategy, the firm's flagship multi-asset product, which has seen steady outflows over the last three years, was down 3% in the fund denominated in pounds and down 3.6% in the euro equivalent.

Year-to-date performance in pounds was minus 2.2%, the data showed, on track to miss its target of exceeding six-month UK LIBOR by 5% per annum over a rolling three-year period. Annualized returns over three years are 0.4%.

Chris Nichols, investment director at Aberdeen Standard Investments, said the fund had profited from positions such as Australian short-term interest rates and being long the yen, helping take the sting out of losses in some equity markets.

After betting on modest global growth at the start of the year, GARS scaled back equity and credit allocations to all-time lows, but has since bought back in to investment-grade debt after the market dislocations seen in March.

Worst hit to March 23 was Bank of New York Mellon's Real Return fund in pounds, down 13.1% to take year-to-date losses to minus 14.4%, the data showed.

BNY said performance had mostly been hurt by a slide in equity values, while corporate bonds, alternative assets and emerging-market debt had also weighed, partly offset by derivative protection.

"The portfolio remains focused on good quality companies with low operational and financial leverage and investments that are daily liquid and daily valued," it said in a statement.

"As we would expect, the portfolio will benefit as the market discriminates between good quality investments that will weather the crisis and those that won’t."

(Reporting by Simon Jessop, Larry King)

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