Allianz Global Investors has expanded its alternatives offerings with the launch of an absolute return fund in response to a rise in popularity of such strategies.
The Luxembourg-domiciled Allianz Structured Return Fund’s core positions consist of short equity call options on the S&P 500 Index, but it will hold a long passive position in the index, as well as put options.
It targets single-digit returns that are uncorrelated to broader stock or bond market movements.
The portfolio is managed by Stephen Bond-Nelson, alongside Greg Tournant, who is the chief investment officer of US Structured Products at AllianzGI. The duo will be supported by a New York-based investment team, which manages $5.3bn (£6.9bn) in option portfolios.
The team has managed the strategy for US investors since December 2012.
Mr Tournant said: “From a risk perspective, the fund’s risk profile is comparable to that of a fixed-income portfolio – yet it does not have the associated credit, duration, or interest rate risk.”
The fund will have an ongoing charges figure of 1.6 per cent for its euro-denominated retail share class. It offers both retail and institutional investors daily liquidity.
Alternatives is one of the four pillars in AllianzGI’s global investment platform – originally launched back in September 2005 – alongside equities, fixed income and multi-asset investments, according to the investment firm.
Provider view
Deborah Zurkow, head of alternatives at AllianzGI, said: “The strategy aims to deliver what clients need most: reliable outcomes for taking bond-like risk. After successfully introducing the Structured Alpha strategy in Europe, we are very pleased to offer our clients another strategy that will help them achieve their investment goals. In a period marked by sustained low interest rates and market volatility, the ability to generate positive returns from largely uncorrelated risk factors will be a key driver for further growth of alternatives strategies.”
Adviser view
Dan Clayden, director of Devon-based Clayden Associates, said: “What we have seen over the past eight years since the financial crash is investors almost being forced to take on more risk in order to generate high returns. I think that more and more clients are looking at alternatives and other vehicles such as peer-to-peer lending in their search for impressive returns, but it is vital for them to understand the risk attached to these products.
“The idea of diversification is to try to build a portfolio of uncorrelated assets, but over time, there has been more correlation in fixed income, equities and properties. Alternatives allow people to invest in something that is truly uncorrelated to the different asset classes. They certainly have a place within a well-diversified portfolio.”
Charges
OCF of 1.6 per cent
Verdict
Absolute return funds aim to provide investors with a return of some sort, regardless of market conditions. The idea behind the instrument is compelling, but the guarantee of a return of some form will cost investors a pretty penny in comparison to traditional equity and bond investments. Here, the investment firm has not set an explicit return target - which is unsurprising given the level of volatility in markets globally. The 1.6 per cent OCF might prove too expensive for some investors. However, the levy takes into account the benefit of having two investment professionals, boasting a wealth of experience, managing the fund.
The apparent surge in popularity of alternative funds is not surprising in the low yield environment at present. As Mr Clayden said, these products do have a place within a well diversified portfolio.
