Hawksmoor Investment Management is holding almost a quarter of its Vanbrugh fund of funds in a range of bonds that aim to produce real returns after inflation at a relatively low risk.
The multi-manager firm says because cash delivered a negative return of 4.1 per cent after inflation last year, its worst real return since 1975, investors are looking for alternatives to holding cash and watching the value of the returns in real terms being eroded by inflation.
Hawksmoor points out that there is uncertainty over interest rates and inflation.
Interest rates are being kept at record low levels, leading investors to switch cash into assets that offer returns.
But Hawksmoor sees rising inflation and defaults as significant risks and has built exposure to floating-rate securities that have historically increased in value during periods of rising interest rates, strategic bond funds that are able to quickly move the duration of their portfolios to benefit from changing conditions in credit markets and an absolute return bond fund.
Specific holdings include the M&G UK inflation-linked corporate bond, Schroder emerging market debt absolute return fund, Axa US short duration high yield, NB global floating-rate income and TwentyFour monument bond fund as alternatives to cash.
The multi-manager has also added to Vanbrugh’s holdings in actively managed fixed-interest funds by buying the Jupiter strategic bond fund.
This fund has just reached its three-year anniversary and invests in higher-yielding assets, including high-yield bonds, investment-grade bonds, government bonds, preference shares, convertible bonds and other bonds. Manager Ariel Bezalel looks for the best opportunities with a good risk and reward trade-off.