Standard Life Investment's global index-linked bond fund aims to provide income by investing mainly in government and corporate inflation-linked bonds. Although the fund may provide capital growth, this is not its main priority.
The fund is an addition to Standard Life Investments' range of lower-risk funds and it will have at least 15 holdings to ensure the portfolio is diversified.
As well as investing in index-linked bonds, the fund can also invest in conventional government bonds and investment-grade corporate bonds but these must total no more than 20 per cent of the portfolio.
The fund is managed by Jonathan Gibbs, who joined Standard Life Investments in 2002 from Henderson. At Henderson, he was divisional director and a member of the global interest rate team. Prior to that he spent time at the Kuwaiti Investment Office and the Bank of England.
When managing the fund, Gibbs is able to deviate from the benchmark index – the Barclays Global Inflation Linked Index - within a set range. In terms of duration, the fund can be minus or plus two years relative to the benchmark weightings. In geographical terms, the fund can deviate by up to 15 per cent either side of the benchmark for the US, UK and France and 10 per cent either side of other countries. Overseas bonds currently dominate the portfolio at 72.4 per cent while 18.9 per cent is invested in UK index-linked bonds. The remainder is split between cash and gilts.
Inflation rises can erode the value of investments over time, so a fund that offers retail investors protection against this on a global basis could be useful. However, the fund's main focus on index-linked bonds means that as well as lower risks relative to other bond funds, the returns generated will also be low. It will be up to the fund manager to create a portfolio that can successfully incorporate a small amount of conventional bonds to provide a worthwhile returns while remaining within the low-risk remit.