Smith & Williamson announced the launch of the Smith & Williamson global inflation-linked bond fund. The fund aims to provide a transparent, cost-effective investment solution for investors who are concerned about inflation but who are also worried by the significant duration risk embedded in UK government index-linked bonds.
The fund is managed by Thomas Wells and will provide global exposure predominantly to government-issued inflation-linked debt. It may also invest selectively in investment-grade sterling inflation-linked corporate bonds with the aim of enhancing returns.
The team will seek to add value through country selection, taking positions of plus or minus 10% relative to the benchmark and also actively managing duration within countries. The ability to utilise the Smith & Williamson fixed income team’s detailed knowledge of corporate issuers provides an additional driver for potential within sterling credit markets.
The fund, a Dublin-domiciled Ucits vehicle, will be focused on high-quality global debt with an average S&P credit-rating of AA, with any non-GBP exposure fully hedged to sterling. It will be benchmarked against the iBoxx global inflation linked bond index, also hedged to sterling.
Smith & Williamson is offering all investors access to an institutional share class with an annual management fee of just 0.25%. The offer period, which will run for 12 months, will enable retail investors to benefit from active management at a fee level that is competitive with ETFs and passive funds.
Wells said: “We have a good track record of producing transparent and dependable investment solutions in fixed income, and have now extended this to the global inflation-linked arena. To us, a global inflation-linked fund makes a lot of sense. UK inflation-linked gilts are very expensive and embed a high level of interest rate sensitivity due to their very long duration – in other words, you have to take a view on where UK rates might be headed, as well as having a view on inflation. Investing globally means that we can obtain materially better yields to maturity with much less duration risk.”
Ed Rosengarten, head of funds at Smith & Williamson, said: “These are exciting times for the funds business at Smith & Williamson and we are delighted to look to continue our track record of providing investment-led solutions to real-world problems. Investors are increasingly concerned about inflation and we have listened to them. Gilts, including linkers, have had a stellar 2016 and there is clearly demand out there for better value and lower-risk inflation hedges. In our opinion, the global inflation-linked bond fund is a transparent and lower-risk solution to the potentially corrosive effects of inflation and offers good value for money.”