ROYAL LONDON
ABSOLUTE RETURN
GOVERNMENT
BOND FUND
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
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.
Note: for illustrative purposes only. Excludes FX hedging.
Cash/
SONIA Duration CurveYield Inflation MarketCross- SpreadBasis/ Volatility SelectionStock
Canada FutureBond, Swaption
France Future
Future & Future
Bond & Swap
Germany Bond & Future
UK CD, FRN Swap Bond, Swap
Bond & Future
US
Risk management
Investment experience and responsibilities
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 0 5 10 15 20 25 30 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
Key fund information
Fund name Royal London Absolute Return Government Bond Fund
Inception date 17/11/2014
Objective 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.
Domicile Dublin
IMA Sector Target Absolute Return
Fund Structure UCITS IV OEIC
Benchmark Overnight Cash Rate (SONIA)
Targeted SONIA + 2.5% rolling 36 months
Performance
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 InvestmentMin Initial SEDOL Launch Date
Class A £ Retail 1.00% £1,000 BP26873 17-Nov-14 Class M £ Wholesale 0.75% £100,000 BP26884 17-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
CONTACT
For further information about any of our products or services, please contact:
Royal London Asset Management
55 Gracechurch Street London EC3V 0RL Tel 020 7506 6678 Fax 020 7506 6796 Email bdsupport@rlam.co.uk
Key Investor Information Documents for OEICs are available on our website.
