• New low-volatility retail fund to target cash-plus performance in all market conditions using Ignis’ successful institutional rates process
• Long/short investment strategy will take positions in developed market sovereign bonds and AAA supranational bonds
• Fund will offer both low volatility* and diversification, with returns lowly correlated to traditional equity and bond funds
• Launched following considerable demand from IFAs seeking a developed market government bond fund that targets positive returns regardless of market direction.
Ignis Asset Management has announced that it is to launch the Ignis Absolute Return Government Bond Fund at the end of March. The fund will target net returns of 2% to 3% per annum in excess of cash by actively trading a portfolio of global government bonds and currencies.
The Ignis Absolute Return Government Bond Fund will be managed by Head of Rates, Russ Oxley, and Chief Economist, Stuart Thomson, and will be the first retail proposition from Ignis’s Rates Team, which manages in excess of £28 billion on behalf of institutional investors.
For the first time, retail investors will be able to access Ignis’s successful rates process. Whilst the majority of bond funds follow a duration based process and / or take corporate credit risk, the Ignis Rates Team uses an internally proven method that breaks down developed country government yield curves into discrete forward rates, giving the managers a far greater insight and level of information than the typical bond fund manager. Breaking down yield curves allows Russ and Stuart to target specific forward rates and enables the managers to exploit pricing anomalies more accurately, through long and short positions.
The fund, a Luxembourg-domiciled UCITS III SICAV, will invest primarily in government bonds, but will also take long and short positions in money market instruments and derivatives. Foreign currency exposure – managed using Ignis’ rigorous FX process - will be limited to 25%.
Unusually for an absolute return fund, the annual management charge will be only 1%, with a 10% fee on performance in excess of a cash hurdle rate, as measured by the Sterling Overnight Index Average (SONIA).
Jonathan Polin, Sales and Marketing Director at Ignis, says:
“With investors increasingly concerned about the future direction of global markets, we think there will be strong appetite for a fund that is able to achieve attractive cash-plus returns in all market conditions with a lower volatility than both the market and other absolute return funds. As an absolute return vehicle, this fund will also provide returns lowly correlated to traditional equity and bond funds and if rates rise, should provide an effective hedge against inflation.
“For the past 12 months Ignis has been in consultation with clients to gauge the level of demand for an absolute return developed market government bond fund. In a recent survey conducted by Ignis, IFAs identified a number of concerns for government bonds; 1) the effect of the sovereign debt crisis; 2) the impact of rising interest rates on government bonds4 and; 3) the potential increase in volatility as a consequence5. Given these concerns, 87% of IFAs said they would be interested in a developed market government bond fund that could generate positive returns regardless of market direction1 – a strategy that, until now, has not been available to retail investors.”
Russ Oxley, Head of Rates, says:
“We are entering a VILE decade; one of Volatile Inflation but with Limited prospects for sustained economic Expansion. In this environment markets will be volatile and are at constant risk of policy error. Government bond and derivative markets are currently suffering from serious distortions caused by the policy response to the credit crisis. Most existing funds are ill-equipped to exploit these opportunities. The unique Ignis ‘forward rates’ process, which splits discount yield curves into their constituent forward rates rather than simply taking an average, is capable of turning these and future distortions into returns for investors. Returns will be further diversified by our currency overlay and income-enhancing derivative strategies. This fund aims to provide low-volatility, absolute returns and will be highly liquid.”
1 Source: 86.6% of 277 IFAs surveyed by Ignis said they would be interested in a developed government bond fund that could generate positive returns regardless of market direction. February 2011.
2 Source: Please note this is a target return only and is calculated on a rolling 12 month basis. The cash level is based on the overnight rate. This is the rate that large banks use to borrow from, and lend to, one another on the overnight market. In the UK this is SONIA (the Sterling Over Night Index Average) and EONIA in Europe.
3 Source: 81.5% of 277 IFAs surveyed by Ignis said they were concerned about the impact of the sovereign debt crisis on government bonds. February 2011.
4 Source: 75.1% of 277 IFAs surveyed by Ignis said they were concerned about the impact of a potential interest rate rise on government bonds. February 2011.
5 Source: 81.9% of 277 IFAs surveyed by Ignis said they were concerned about the impact of volatility on government bond funds. February 2011.
*Between 4% and 6% standard deviation
Product details:
Fund name Ignis Absolute Return Government Bond Fund
Investment aim The objective of the fund is to deliver positive total returns that are independent of bond and equity market conditions.
Investment instruments The fund will invest primarily through taking long and short positions in developed market government bonds, as well as using money market instruments and derivatives. It may also invest in repurchase and reverse repurchase agreements to achieve the short positions.
Fund managers Russ Oxley and Stuart Thomson
Fund structure UCITS III SICAV
Registered Luxembourg
Sector IMA Absolute Return
Launch date Late March 2011
Initial charge Up to 5%
AMC 1% (A shares) / 0.6% (I shares)
Performance change 10% of performance generated above hurdle rate – SONIA
Minimum investment £1000 (A shares) / £1,000,000 (I shares)
ISA availability Yes
ISA transfer availability Yes
Base currency Sterling