Since Mike Riddell and team at Allianz Global Investors took over management of the Allianz Gilt Yield Fund in November 2015, the Fund now sits as the top performing FTSE All-Stocks gilt fund in the sector (data source: Morningstar). The team has successfully demonstrated their leading knowledge of gilt markets and the repeatability of their investment strategy and process by outperforming their benchmark in each consecutive month from November 2016 to October 2017. The award-winning team is now proud to announce that they are launching a new fund dedicated to investing in another section of the gilt market: The Allianz Index-Linked Gilt Fund. Mike is supported by Kacper Brzezniak who is the deputy portfolio manager on the Fund. We spoke to Mike and Kacper about their new strategy.
Index-linked gilts are UK government bonds whose cash flows are linked to inflation, and they make up about 30% of the outstanding gilt market. Traditionally, they are used as a protection against a pick-up in inflation above that which the market anticipates. Given the success of the Allianz Gilt Yield strategy within the gilt space, we have decided to launch a sister strategy for the Allianz Index-Linked Gilt Fund. The Fund will utilise 5 core strategies for generating alpha in the index-linked gilt market: Duration, Curve, Relative Value, Conventionals, and Cross-Market.
The fund will sit in the Investment Association (IA) Index-Linked Gilt sector, therefore abiding by sector rules it will have at least 80% of the Fund invested in Index-Linked gilts, but retains the flexibility to go off benchmark when we see better cross-market or breakeven opportunities. This could include buying US Treasury Inflation Protected Securities (TIPS) when these look more attractive than their index-linked gilt counterparts, or even buying conventional gilts when they look attractive relative to index-linked gilts. Any non-sterling investments will be 100% hedged back to sterling, so that there will be no FX risk.
We believe that index-linked gilt markets are even more inefficient than conventional gilts, and this opens up opportunities within the sector. Many of the largest index-linked gilt funds are currently passive, which don’t have the capability of harvesting these inefficiencies to generate outperformance that active funds do. The Fund will aim to outperform the benchmark of, the
FTSE Actuaries UK Government Index-Linked All
Stocks Total Return GBP (Midday) Index, following a similar strategy that we have successfully implemented in the Allianz Gilt Yield Fund.
In line with the existing gilt strategy, the Allianz Index-Linked Gilt Fund will also be priced, in our view, very competitively for an active fund relative to its passive peers. The ‘early-bird’ share class will have an Ongoing Charges Figure (OCF) of 0.20%, available for the first £105m of investment, and then the I share class will then have an OCF of 0.30%. The Allianz Gilt Yield Fund I Inc share class currently has an OCF of 0.32%.
Further information on Mike Riddell and our Allianz Index-Linked Gilt Fund can be found by clicking here
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