Stockholm (HedgeNordic) – Abrdn, formerly known as Standard Life, shut down its once-successful Global Absolute Returns Strategy (Gars) last year after failing to deliver as an all-weather strategy. However, a Gars clone managed by the multi-asset team at Swedish insurer Länsförsäkringar has not only survived but evolved, and most recently, started fulfilling its promises by performing well even in challenging market conditions.

Launched in mid-September 2016, Länsförsäkringar Multistrategi was initially managed by global asset manager Aviva Investors before Länsförsäkringar’s own multi-asset team took over in mid-2019. “We aimed to create a better alternative than Standard Life’s Gars strategy, which was a huge success and had a lot of assets under management on the Länsförsäkringar platform,” says Sebastian Hallenius, fund manager of multi-assets at Länsförsäkringar. “We believed in the strategy and thought we could do it better.”

“We believed in the strategy and thought we could do it better.”

Standard Life’s Gars strategy and its clones sought to deliver returns regardless of market direction by investing across various asset classes, including equities, bonds, and currencies, among others. Länsförsäkringar’s own Multistrategi fund aims to generate returns about three to four percent above risk-free cash with about one-third of stock market volatility. The first major test for Länsförsäkringar Multistrategi came with the COVID-19 pandemic in early 2020, followed by the challenging market conditions of 2022 driven by rising interest rates in response to inflationary pressures. These episodes led to the closure of Standard Life’s Gars strategy in 2023.

“Both the Covid and 2022 market conditions were tough for these types of Gars strategies. We have evolved over time and made changes to become a better strategy and fund.”

“Both the Covid and 2022 market conditions were tough for these types of Gars strategies,” says Hallenius. Länsförsäkringar Multistrategi struggled in those environments as well, experiencing a decline of 1.3 percent in 2020 after a difficult first quarter and a 7.5 percent loss in 2022. However, the fund recovered with a return of 6.2 percent in 2023 and an additional 5.9 percent in the first half of 2024. “We have evolved over time and made changes to become a better strategy and fund,” notes Hallenius.

The Evolution of Länsförsäkringar Multistrategi

One significant change was the implementation of a new set of risk-off strategies. “What we learned through Covid was the need for strategies that would have worked in risk-off environments,” recalls Hallenius. “We sought out strategies that do not cost much when everything is fine,” he emphasizes. Länsförsäkringar Multistrategi introduced three risk-off strategies: a combination of minimum volatility defensive stocks and shorting equity futures; exposure to defensive currencies such as the U.S. dollar, Euro, and Swiss franc; and exposure to physical gold. “These are all new to the fund, and these assets have been driving returns recently in the risk-off environment in July and early August.”

“What we learned through Covid was the need for strategies that would have worked in risk-off environments.”

Länsförsäkringar Multistrategi also maintains risk-on return drivers, including alternative equity beta, various credit exposures and alternatives such as catastrophe bonds.  “The fund seeks to invest in different type of assets with historically higher Sharpe ratios than traditional assets,” notes Hallenius. For example, “the CAT bonds in the portfolio are currently yielding 12 percent if nothing happens, and about nine percent with a normal catastrophe event,” he explains. The fund also targets exposure to different alternative betas such as minimum volatility style equities with a strong sustainability focus. Having moved away from using ETFs, “we have found that by directly managing a global portfolio of about 120 stocks, we can enhance our equity exposure, deliver a better return profile fitted for the fund and also be proactive when opportunities arise in factors, sectors and regions.”

Another key risk-on driver for the fund is its diverse credit exposure, which includes investment grade bonds, emerging market debt and Swedish floating-rates bonds. “By having less of traditional bonds and equities, we find that adding different types of credit where we see opportunities enhances risk-on performance while also mitigating losses in risk-off environments,” emphasizes Hallenius.

Five years after Hallenius and his team took over the management of Länsförsäkringar Multistrategi, the fund has grown to manage SEK 1.2 billion in assets, up from about half a billion five years ago. “We have had quite good returns over the past two years, ranking among the best in our peer group within this volatility range,” says Hallenius. According to Hallenius, Länsförsäkringar Multistrategi, along with all market participants, has endured two extreme events in a short period. “The last two major risk off events we experienced are not typical over a 50-year sample.” 

“As you do with all things, we have managed the fund for five years now, seen what has been working and made changes to what has not.”

“As you do with all things, we have managed the fund for five years now, seen what has been working and made changes to what has not,” concludes Hallenius. “The fund’s performance in recent years versus peers is a testament to that and I believe it will outperform both peers other balanced funds within the same risk space over the next five years.”