Smith & Williamson is launching a fund investing in inflation-linked bonds around the world, aimed at investors concerned about inflation but also duration risk on UK index-linked bonds.
The new fund, which will be managed by Thomas Wells, will mostly invest in government-issued inflation-linked debt, but may buy into investment-grade sterling inflation-linked corporate bonds.
The Dublin-domiciled Ucits is planning to hedge currency exposure to sterling, and Smith & Williamson is offering all investors access to an institutional share class with an annual management fee of just 0.25 per cent for the first twelve months.
The company said that this would allow retail investors to benefit from active management at a fee level that is competitive with ETFs and passive funds
“We have a good track record of producing transparent and dependable investment solutions in fixed income, and have now extended this to the global inflation-linked arena,” Mr Wells said.
“To us, a global inflation-linked fund makes a lot of sense.
"UK inflation-linked gilts are very expensive and embed a high level of interest rate sensitivity due to their very long duration – in other words, you have to take a view on where UK rates might be headed, as well as having a view on inflation. Investing globally means that we can obtain materially better yields to maturity with much less duration risk.”
Darren Cooke, director at Red Circle Financial Planning in Derbyshire, said he had recently reviewed client portfolios and lessened their exposure to inflation-linked UK government bonds.
“I think they’ve had their day,” he said. “Clients aren’t very concerned about inflation at the moment, because it has been so low for so long, but it is the adviser’s job to tell them about the effect that it might have. “
He added that he was replacing inflation-linked bond investments with global corporate and government bonds, but none were inflation linked.
