The UCITS-compliant open-ended fund, which opened to investors on 4 December and is domiclied in Dublin, will focus on the G10 market.
It will invest in government bonds and associated derivatives mainly on a long-term basis, but will also hope to capitalise on select shorter-term opportunities, to offer what the firm described as “symmetric investing”.
Darren Bustin, RLAM’s head of derivatives, will co-manage the fund with Paul Rayner, head of government bonds, working with the firm’s fixed interest and derivatives teams.
The initiative comes during a time of uncertainty for the bond market, with many developed market government bond yields at or near 18-month lows.
However, RLAM cited the low yields as the core reason why it has opted to launch the fund, as Rayner explained: “The problem with many long-only funds is that they are asymmetric. Our view is that over the next two to three years, yields will gradually rise, so normal bond and corporate bond funds will suffer capital losses over the next two to three years.”
“With an absolute return fund we can do more symmetric investing and benefit from yields rising as well as falling by going short and long. We think it is a perfect time to launch the fund.”
While Rayner conceded that there are risks, such as low energy prices potentially driving the global economy, he believes that the double-sided investment strategy provides the fund with sufficient room to manoeuvre.
He said: “People are getting hung up on the oil price being deflationary, but if you go back four years everyone was talking about $150 dollars a barrel being a tax on the world economy. You can’t have it both ways, so we think in the long-term growth will pick up.
“All bond markets won’t move in the same direction at the same time. This is going to be a strong relative-value fund, so we will be looking at cross-market ideas, the relative value of inflation versus government bonds, volatility traits. We could not do all of this in a normal gilt or US treasury fund, and can benefit on both the relative value side and in all market conditions.”
Bustin added: “We will use a combination of strategic and tactical investing to keep the risk within the fund low but also manage our performance.”
