Fixed Income  

RLAM joins bandwagon of short-dated bond funds

The fixed-income funds will include an index-linked fund, a credit vehicle and a short-duration gilt fund, and are expected to be made available towards the end of this year.

Management duties will be assigned to three current fund managers of other Royal London fixed-income vehicles.

Paul Rayner, RLAM’s head of government bonds and current manager of the £419m Royal London UK Government bond fund, will take the reins of the short-duration gilt fund.

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The index-linked fund, meanwhile, will be managed by Craig Inches, co-manager of the £424m index-linked gilt vehicle, and Sajiv Vaid, manager of the £177m European Corporate bond fund, will take over the short duration credit fund.

Targeted yields for the three vehicles range from between 1 per cent and 1.25 per cent for Mr Rayner’s fund and between 2.75 per cent and 3 per cent for Mr Vaid’s fund.

While the launches are due to go ahead in either Q3 or Q4 of this year, a spokesperson for RLAM has confirmed that this is subject to regulatory approval, which could subsequently delay the process even further.

A number of providers have recently launched short-duration bond funds to satisfy increasing demand. With interest rates expected to rise after years of intense quantitative easing programmes, many investors have expressed an interest in short-duration vehicles.

The unveiling of these three funds follows the introduction in February of the Short Duration Global High Yield bond fund for Royal London’s head of global high yield, Azhar Hussain.

REACTIONS

Provider view

Quentin Smith, marketing and communications manager for RLAM, said: “Our rationale for developing a range of short-duration funds is to meet client demand, given that the current low-interest-rate environment has reduced the attractiveness of bond funds with longer duration. While we expect interest rates to remain on hold for the time being, once they do start to rise these funds will offer some protection from interest-rate risk.”

Adviser view

Raj Shah, principal of Sheffield-based Blue Wealth Management, said: “I think that it is great to see more providers considering the merits of short-dated fixed interest funds, which is a strategy we have been using with our clients for a number of years now. It will be interesting to see how their charges compare to the market. Using a mix of asset classes, including short- and long-dated funds, a client’s portfolio can weather most storms. This may not appear to be attractive as the yields are quite low, but to get anything higher you need to be taking much more risk, which some people may be uncomfortable with. It will also be interesting to see if any more funds of a similar nature are launched.

CHARGES

RLAM has yet to confirm the fees.

VERDICT

Short-duration vehicles have risen in popularity as an alternative to low-yield traditional bonds. With interest rates expected to finally start increasing, these funds have been pinpointed as an ideal solution because they tend to be less sensitive to change. As a result, it is no surprise to see RLAM announce the launch of these three funds and potential investors will be buoyed by the experienced profile of its confirmed managers. However, while these vehicles could well appeal to the more risk-averse investor, the fees will play a defining role in establishing whether they offer value for money.