Launch of Global Short Duration Corporate Bond Fund – Reducing Interest Rate Risk
02 November 2017
As many of the world’s central banks begin to move away from extraordinary monetary policy settings, investors are growing increasingly wary of the effect of rising interest rates on their fixed income investments. By launching the Global Short Duration Corporate Bond Fund* we hope to help investors overcome this challenge. The Fund seeks to deliver attractive risk-adjusted returns from a diverse portfolio of global corporate bonds, but with significantly reduced interest-rate risk.
We aim to reduce the interest-rate risk by investing primarily in bonds with maturities of between one and five years, therefore delivering significantly lower exposure to interest rate risk than the wider global corporate bond universe. We believe the best way to generate alpha in credit markets is through rigorous, bottom-up credit analysis and the Global Credit team behind the Fund has a proven track record of consistently adding value from robust stock selection. The Fund is a genuinely global portfolio, rather than allocating to regional silos, we treat the global credit universe as one opportunity set. This allows the Fund to take a ‘global relative-value’ perspective in pursuit of strong risk-adjusted returns.
The Fund is managed by Craig MacDonald, Samantha Lamb, Jon Curran and Chris Heckscher.
Samantha Lamb commented:
"Fundamental credit research and conviction views on companies are critical to our alpha generation. By investing primarily in short-maturity bonds, the Global Short Duration Corporate Bond Fund is an option for investors concerned about interest-rate risk who continue to seek value from credit spreads and active management across a global credit opportunity set."
"Although we are conviction investors, we have an approach that tailors credit selection to the overall macroeconomic environment. We focus on adding value from idiosyncratic credit risk but with the risks and themes of the portfolio adjusted to reflect macroeconomic and geopolitical factors.”
Jeremy Lawson, Chief Economist observed:
“Today the Bank of England has lifted its policy rate for the first time since July 2007. In the Bank’s judgement rates need to rise to reduce the risk of inflation persistently overshooting its target and that policy can be tightened without undermining growth and the labour market recovery. Because the rate increase is already priced in, markets will be mainly focused on the communication accompanying the move and what it means for future policy."
"Despite the symbolic significance of today’s rate increase, this will be a very shallow and gradual tightening cycle. We think that the Bank will be able to lift rates at most only three more times over the next few years as Brexit uncertainty, lower potential growth and the elevated level of consumer credit hold down the interest rates that the economy can absorb without rolling over."
“If we are right about the outlook for UK policy rates, the pace of the BoE’s tightening cycle will be intermediate between that of the Fed on the one hand, and the ECB and the Bank of Japan on the other. In the US we expect at least five rate increases over the next two years, beginning in December. More are possible if a sizeable tax cut package is passed in the coming months."
“In the Eurozone, where inflation pressures are still very subdued we do not expect the ECB’s main policy rate to be increased until the last months of 2019, around a year after the asset purchase programme comes to an end, though some adjustment in the deposit rate could come earlier. Meanwhile, in Japan, where underlying inflation is even weaker, we expect the BoJ to maintain its yield curve control framework at current rates for the foreseeable future.”
*The Standard Life Investments Fund is a Luxembourg domiciled SICAV