Aquila launches first fixed income risk parity fund

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4 Jul 2013

Aquila Capital has launched what it claims is the first risk parity strategy to focus exclusively on fixed income.

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Aquila Capital has launched what it claims is the first risk parity strategy to focus exclusively on fixed income.

Aquila Capital has launched what it claims is the first risk parity strategy to focus exclusively on fixed income.

The AC – Risk Parity Bond fund is targeted at investors who wish to retain substantial exposure to fixed income despite any challenges experienced within the asset class, Auquila said.

The fund applies a systematic allocation method that does not rely on forecasts or duration targeting, while aiming to be as diversified as possible across instruments, return drivers, geographies and durations. It does this through investing with equal risk weightings across four types of fixed income asset, including government bonds, corporate bonds, carry positions in emerging markets and inflation-linked bonds. Aquila said these asset are not only uncorrelated but also have varying correlations with the economic and fixed income cycles, resulting in a combination which allows positive long term return targets regardless of whether rates are rising, falling or flat.

The fund, which will sit alongside Aquilla’s set of traditional, multi-asset risk parity funds, seeks to offer investors long term stable returns regardless of the twists and turns in the economic and fixed income cycle. It targets a return of cash plus 3% with annualised volatility of approximately 3%.

Aquila Capital senior portfolio manager Torsten von Bartenwerffer said: “The AC Risk Parity Bond fund is designed to offer investors long-term stable returns irrespective of market conditions and we believe this will strongly appeal to a broad range of long term conservative investors.

“Capital is allocated based on the risk an asset contributes to the portfolio rather than predicted returns and market timing plays no role at all. Instead, the strategy focuses on managing uncertainty through effective diversification between assets that have no correlation to each other and which have various correlations to different phases of the economic and fixed income cycles. Sub asset classes are selected such that as one goes down, one or more of the others will rise.”

The launch follows the publication of research by Aquila which found nearly two out of three European institutional investors (66%) believe current market conditions for fixed income investors are either “challenging” or “very challenging”. Nearly three out of five (59%) said it was “difficult” to generate positive performance throughout the interest rate cycle, including 15% who said it was “very difficult”.

Despite the concerns however, the research suggests exposure to fixed income is unlikely to change much over the next three years: 31% of respondents said their allocation will remain the same; 29% said it would increase moderately and 27% said it would decrease moderately. Only 4% anticipated a dramatic reduction.

Less than one in five (19%) agreed a “great rotation” of investor capital from bonds to equities is taking place, with the majority (54%) rejecting the concept outright and 27% uncertain.

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