Royal London Asset Management has launched three funds designed to meet the growing investor demand for short-duration fixed-income funds with lower interest-rate risk.
The funds have been designed to offer clients protection from the potential of rising interest rates. The Short Duration Gilt fund, Short Duration Credit fund and Short Duration Global Index Linked fund are sub-funds of the Royal London Bond Funds investment company with variable capital.
The funds will be made available as Oeics on an institutional and wholesale basis. The wholesale share classes will be targeted at UK multi-managers and wealth managers, in addition to investment platforms.
• Short Duration Gilt fund: Target duration of 2 to 5 years, targeted yield of 1.0 to 1.25%, annual management charge of 0.20%, estimated ongoing charge of 0.25%
• Short Duration Global Index Linked fund: Target duration of 2 to 5 years, target yield of 2.75 to 3.00%, AMC 0.25%, ongoing charge 0.30%
• Short Duration Credit fund: Target duration of 5.5 years, target yield of 1.50 to 2.50%, AMC 0.20%, ongoing charge 0.25%
Jonathan Platt, head of fixed income for RLAM, said: “Irrespective of the extent and pace of further increases in government bond yields, returns from are likely to be volatile.
“The natural response of investors to an environment of rising and/or volatile yields is to reduce bond portfolio risk by lowering the overall duration of their portfolio.
“These funds will enhance investor ability to do this, while allowing the portfolio managers to focus on enhancing returns through active stock selection, duration management and allocation to other asset classes on a strategic and tactical basis.”
Peter Davies, founder of Cardiff-based Create Wealth:
“The charges are very competitive, a lot of bond funds out there are charging up to double. There are periods in an economic cycle when long-duration funds perform better than short-duration funds. I prefer bond funds that give the fund manager flexibility to make the calls as they see fit.”