The Dublin-based GAM Star Barclays dynamic multi-index allocation fund is a fund of alternative indices, with lower costs than traditional funds of hedge funds. It aims to provide consistent, non-correlated returns of 4 to 6 per cent above Libor in any market environment by applying GAM’s investment management and asset allocation skills to Barclays Capital’s quantitative indices. The fund will diversify across asset classes and investment strategies in line with changing market conditions using the indices, some of which have short positions built in.
Barclays Capital offers more than 4,000 investable indices but only 20 to 30 will make it in to the GAM portfolio. GAM co-managers Chi Lee and David Smith create the portfolio from the initial universe by filtering out indices with similar strategies or those that have such a narrow focus that they are deemed too niche for the GAM portfolio. The remaining indices are whittled down to a shortlist of about 50. This shortlist is not static and will be constantly reviewed and updated to ensure it contains the best indices for representing each strategy and asset class.
The chosen indices express the views of GAM’s multi-manager team across asset classes and trading styles. High liquidity enables the fund to be completely liquidated within days of a significant market shock, which would not be the case traditional hedge fund investments. Using indices also enables GAM’s managers can see everything in the portfolio, enhancing their understanding how much risk it contains.
GAM says investing in quantitative indices has become more mainstream because investors are complementing their alternative investment portfolios with index allocations. However, the fund is likely to appeal to more sophisticated investors who are looking for a medium to higher risk alternative to funds of hedge funds.