German boutique to launch 'world's first' risk parity bond fund

Alternatives boutique Aquila Capital is set to launch a ‘world first’ bond strategy based on its quant-driven, risk-parity approach, the Hamburg-based firm has announced.

The asset management company said it devised the Risk Parity Bond in response to the uncertain market outlook for fixed income investors.

It will operate by investing with equal risk weighting across four types of fixed income asset, each of which is uncorrelated to the other.

This will see the fund invested across government bonds, corporate bonds, carry positions in the emerging markets and inflation-linked bonds.

As one asset type goes down, one or more of the other asset types should rise. This is intended to mitigate risks and stabilise the returns across the portfolio.

Aquila said the approach is based on the systematic strategy used in its existing quant-based risk parity allocation funds, the AC Risk Parity 7 , AC Risk Parity 12 and the AC Risk Parity 17, which was launched last summer.

Commenting on the fund, Torsten von Bartenweffer, director of portfolio management at Aquila Capital, said: ‘Aquila’s new Risk Parity Bond strategy is a world first. It uses the same diversification and risk equalisation principles as our multi-asset Risk Parity funds.’

Von Bartenweffer said capital will be allocated purely on the basis of the risk an asset contributes to the portfolio rather than its predicted returns. This also means the fund does not depend on market timing.

Aquila intends to run the fund on a team-based approach, comprised of von Bartenweffer and the Aquila Capital Quant team, and is set to launch the fund by the summer.