Axa Investment Managers has launched a global short duration inflation fund.
The World Funds Global Inflation Short Duration Bonds fund aims to mitigate the impact of inflation and interest rate risk with the use of a liquid strategy and diversification.
The fund will be managed by Jonathan Baltora together with Marion Le Mordhedec, who also manages the firm’s World Funds Universal Inflation Bonds fund.
The managers will approach the fund similarly to the existing Inflation Bonds fund but with a shorter duration focus of zero to five years.
“Investors have started to be more short-sighted in the bond market and the short-term [approach] is having a massive influence in the bond market,” Baltora told Fund Strategy. “Short duration inflation-linked bonds can help investors fight inflation with less interest rate risk than longer duration bonds. They tend to closely track inflation.”
“A key feature of the inflation linked bonds market is that the inflation paid out to investors is the same for every bond across the curve; investors looking for explicit inflation protection need not be exposed to all maturities,” he says.
The fund will only invest in advanced economies, says Baltora. The biggest exposure will be in the US, at 50 per cent, 25 per cent in Europe, and the rest split between the UK, Australia and New Zealand.
The fund managers say the fund has a global reach because “there is more value in being diversified and it makes sense from a risk and reward perspective”.
Baltora adds: “Short duration bonds can also be cheaper than longer duration inflation linked bonds. In these uncertain times, investors in short duration inflation bonds would be giving up less yield thanks to the flattening of the underlying real yield curve, which was particularly noticeable after the recent UK referendum vote. “