ROYAL LONDON ABSOLUTE RETURN GOVERNMENT BOND FUND

Transcription

1 ROYAL LONDON ABSOLUTE RETURN GOVERNMENT BOND FUND For professional investors only

2 A NEW OPPORTUNITY Absolute return funds offer an attractive, alternative source of alpha outright or as part of a balanced portfolio They are becoming an increasingly popular form of investment as investors seek a strategy that aims to provide capital growth, alongside downside risk management, irrespective of market conditions Royal London Asset Management has a proven capability and strong track record, having managed portfolios of this type over the last four years Our investment strategy The Royal London Absolute Return Government Bond Fund aims to take advantage of valuation opportunities within the government bond markets of the G10 economies (Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Sweden, Switzerland, UK and the United States). To achieve this, the fund simultaneously takes long positions in cheap securities and short positions in related expensive securities. Exposures will be gained through investment in physical G10 government bond assets and securities issued by supranationals and sovereigns, as well as through relevant and appropriate derivative instruments associated with the government bond markets in the G10 countries. Non-base currency exposures arising from bond market exposures are hedged back to the base currency of the fund. Active currency views are not taken by the fund. However, the fund may experience a small foreign exchange exposure from time to time as a consequence of market movements. A well-established philosophy We believe government bond markets are driven by macro-economic themes (e.g. interest rates, inflation, GDP growth) in the medium to long term. In the short term these markets can be inefficient and/or volatile. This presents opportunities for the fund to invest tactically around longer term strategic views adding incremental alpha and reducing the volatility of returns. This combination of long-term strategic positions with short-term tactical positioning enables the fund to exploit a wider range of opportunities leading to diverse sources of performance. A robust process designed to exploit opportunities Our investment process (illustrated below) combines top-down macroeconomic research with bottom-up stock selection. By taking this approach, we aim to construct a portfolio that will deliver consistent outperformance from diverse sources across all stages of the economic and market cycle. Our investment process is strictly adhered to in order to identify investment opportunities, drive efficient portfolio construction and aims to produce outperformance in a consistent and repeatable manner. Economic Research Analysis Strategic & Tactical Opportunities Risk Analysis & Selection Implementation Economics Base Rate Forecast Regression Models Interest Rate Path G10 Generator Cross Market Yield Analysis Market Analysis Intra Market Cross Market 8 strategies Risk Analysis Incremental VaR Stress Testing Selection Market Prices Efficient Implentation Risk Management 2

3 A range of strategies across G10 markets to provide diverse sources of performance The example matrix below illustrates the types of bond market strategies that could be in place across the fund at a point in time. In the example below, the fund is short duration via a future on French Government Bonds. A yield curve position is in place on the German government bond market, and has been implemented using government bonds and government bond futures in that market. A similar strategy is in place on the UK government bond market using sterling interest rate swaps. Such yield curve strategies capture movements in the shape of an individual country yield curve, and performance differences, between two maturity points. Also in the example are cross market strategies. These include a position between Germany and France; implemented using government bond futures in both markets and a position between the UK and US; implemented using government bonds in one market and government bond futures in the other. Such cross market strategies capture performance differences between the two markets. Cash/ SONIA Duration Yield Curve Inflation Cross- Market Basis/ Spread Volatility Stock Selection Canada Bond, Swaption France Germany Bond & & Bond & Swap UK CD, FRN Swap US Bond, Swap Bond & Note: for illustrative purposes only. Excludes FX hedging. Risk management Risk management is central to the way the fund is managed and is supported by sophisticated portfolio and risk management systems, ensuring that the fund is managed in line with the investment process and objectives, with the central aim of combining a number of diverse positions. We use a variety of techniques to measure risk, including Value at Risk (VaR), stress tests and scenario analysis. Portfolios are managed within a VaR risk budgeting framework, helping to ensure suitable diversification of both risk and return drivers. 3

4 A diverse and highly skilled team, experienced in relative value The fund is managed by Darren Bustin, Head of Derivatives and Paul Rayner, Head of Government Bonds. The fund utilises a wider collegiate approach incorporating the RLAM fixed income and derivative teams. Paul and Darren work together on the fund with regard to idea generation, incorporating ideas from team meetings with the wider fixed income team. This ensures only the best ideas are invested within the fund. The RL Absolute Return Government Bond Fund brings together the extensive expertise of our derivatives and government bond teams. Combined, the team has over 80 years experience in investing in derivatives and government bond markets, including UK gilts, index linked securities and overseas government bonds. We believe the fund management team offer the following benefits: A wealth of experience No Group Think Diverse backgrounds Specialists Comprehensive coverage Investment experience and responsibilities Years Paul Rayner Head of Government Bonds Co-lead fund manager RL ARGBF Strategic & tactical analysis Darren Bustin Head of Derivatives Co-lead fund manager RL ARGBF Strategic & tactical analysis; strategy selection Craig Inches Senior Portfolio Manager Strategic & tactical analysis Proprietary G10 yield and return forecast modelling Ian Kernohan Economist Macro-economic forecasting G10 interest rate forecasts Stephen Ruggiero Derivative Portfolio Manager Derivative strategies Efficient implementation Dr Tim Tien Quantitative Analyst Risk Analysis Proprietary G10 yield and return forecast modelling RLAM Prior to RLAM 4

5 Key fund information Fund name Royal London Absolute Return Government Bond Fund Inception date 17/11/2014 Objective Domicile IMA Sector Fund Structure Benchmark Targeted Performance The investment objective of the fund is to target absolute positive capital growth. The fund invests in a portfolio comprising fixed and/or floating rate investment grade government and inflation linked bonds, supranational and sovereign Floating Rate Notes issued by the G10 Member States, and derivatives. The fund seeks to achieve its investment objective by outperforming its benchmark, the Sterling Overnight Index (SONIA) on an annual basis by between 2.5% and 3% over rolling three year periods and aims to provide positive performance over a 12 month period. Dublin Target Absolute Return UCITS IV OEIC Overnight Cash Rate (SONIA) SONIA + 2.5% rolling 36 months Targeted Maximum one month 99% VaR of 7% with soft limit at 5% Volatility* Extension past 5% only with permission of committee Duration +/- 1 year Share Class Description AMC Min Initial Investment SEDOL Launch Date Class A Retail 1.00% 1,000 BP Nov-14 Class M Wholesale 0.75% 100,000 BP Nov-14 Class Z Institutional 0.50% 1,000,000 BP3QZQ0 17-Nov-14 Class M EUR Hedged Wholesale 0.75% 100,000 BP3QZR1 TBC Class Z EUR Hedged Institutional 0.50% 1,000,000 BP3QZS2 TBC Class M USD Hedged $ Wholesale 0.75% $100,000 BP3QZT3 TBC Class Z USD Hedged $ Institutional 0.50% $1,000,000 BP3QZV5 TBC EUR and USD share classes not currently available. Please speak to your relationship manager for further details. 5

6 CONTACT For further information about any of our products or services, please contact: Royal London Asset Management 55 Gracechurch Street London EC3V 0RL Tel Fax Key Investor Information Documents for OEICs are available on our website. For professional investors and advisors only. Issued by Royal London Asset Management November Information correct at that date unless otherwise stated. Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. For funds that use derivatives, their use may be beneficial, however, they also involve specific risks. Derivatives may alter the economic exposure of a fund over time, causing it to deviate from the performance of the broader market. Royal London Asset Management Limited provides investment management services, registered in England and Wales number ; Royal London Unit Trust Managers Limited manages collective investment schemes, registered in England and Wales number RLUM (CIS) Limited, registered in England and Wales number All of these companies are authorised and regulated by the Financial Conduct Authority. Royal London Pooled Pensions Company Limited provides pension services, authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, registered in Scotland number SC All of these companies are subsidiaries of The Royal London Mutual Insurance Society Limited, registered in England and Wales number Registered Office: 55 Gracechurch Street, London, EC3V 0RL. The marketing brand also includes Royal London Asset Management Bond Funds Plc, an umbrella company with segregated liability between sub-funds, authorised and regulated by the Central Bank of Ireland, registered in Ireland number Registered office: 70 Sir John Rogerson s Quay, Dublin 2, Ireland. 817-PRO-10/2014-CH