Axa IM has launched a bond fund which will aim to hedge against the effects of inflation and interest rate risk through a diversified and liquid strategy.
The Luxembourg-domiciled fund, called Axa World Funds Global Inflation Short Duration Bonds, will invest in global bonds between zero and five years in duration. Short duration bonds are also less sensitive to interest rate changes which should result in less volatility than the wider market, according to the firm.
It will be managed by Jonathan Baltora alongside Marion Le Morhedec who will deputise. Mr Baltora currently supports Ms Le Morhedec in the management of the investment firm’s flagship fund Axa WF Global Inflation Bonds fund.
The newly launched financial product follows a similar strategy to the fund but with a short duration focus.
According to FE Analytics data, the fund has endured a turbulent five year period, returning minus 17.36 per cent to 1 July 2016.
The fund has both retail and institutional share classes and is registered for distribution in Austria, Belgium, Denmark, France, Finland, Germany, Italy, the Netherlands, Norway, Spain, Sweden and the UK. The fund will also be available shortly in Switzerland.
Provider view
Mr Baltora said: “Short duration inflation-linked bonds can help investors fight inflation with less interest rate risk than longer duration bonds. They tend to closely track inflation. A key feature of the inflation-linked bonds market is that the inflation paid out to investors is the same for every bond across the curve; investors looking for explicit inflation protection need not be exposed to all maturities.
“Short duration bonds can also be cheaper than longer duration inflation-linked bonds. In these uncertain times, investors in short duration inflation bonds would be giving up less yield thanks to the flattening of the underlying real yield curve, which was particularly noticeable after the recent UK referendum vote.
Adviser view
Simon Webster, managing director of Ashford, Kent-based Facts & Figures: Chartered Financial Planners, said: “Bonds, particularly government bonds, were perceived as being low risk investments in the past but over past few years, they have produced negative results. The issue facing advisers is finding a low risk way of investing clients’ money with minimum volatility. It is true that short duration bonds carry a lower interest rate risk compared with longer duration bonds.
“There is an increasing realisation among the general population that to get good returns, they have to take more risk – especially at a time of low interest rates. The real issue centres on whether short duration bonds can maintain double-digit returns over the next two years.
Charges
Ongoing charge figure of 0.47 per cent.
Verdict
The old adage, fortune favours the brave, is one that applies to the investment industry amid a period of significant volatility, and political uncertainty in western markets such as the UK. Equities still offer mouth-watering returns but are higher risk, while the reverse is true for bonds. However, the performance of government bonds have been particularly disappointing in the past few years.
