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Introducing the Allianz Index-Linked Gilt Fund

Mike Riddell and the team at Allianz Global Investors are proud to announce the launch of their new Index-Linked Gilt Fund, set for early February. The actively managed index-linked gilt fund will be available to early-bird investors for a price competitive with some of the passive funds in the sector. Mike is supported by Kacper Brzezniak, and the team are currently the number 1 performing UK government bond team since Mike took over management of the fund in November 20151.

The fund will sit in the Investment Association (IA) Index-Linked Gilt sector, therefore abiding by sector rules it will have at least 80% of the Fund invested in Index-Linked gilts, but retains the flexibility to go off benchmark when the team sees better cross-market or breakeven opportunities. This could include buying US Treasury Inflation Protected Securities (TIPS) when these look more attractive than their index-linked gilt counterparts, or even buying conventional gilts when they look attractive relative to index-linked gilts. Any non-sterling investments will be 100% hedged back to sterling, so that there will be no FX risk.

In line with Allianz Global Investors’ active investing philosophy, the team believe that there are several persistent anomalies which can be exploited by an active fund in the index-linked gilt market. The team have compelling evidence that index-linked gilt markets are even more inefficient than conventional gilts, and this opens up opportunities for active investors proposed a compelling argument in an academic paper2. Many of the largest index-linked gilt funds are currently passive funds, which don’t have the capability of harvesting these inefficiencies to generate outperformance that active funds do.

Given the success of the Allianz Gilt Yield strategy within the gilt space, the team have decided to follow a sister strategy for the Allianz Index-Linked Gilt Fund, utilising the same strategies which the Allianz Gilt Yield has used to generate returns. The Fund will utilise 5 core strategies for generating alpha in the index-linked gilt market: Duration, Curve, Relative Value, Conventionals, and Cross-Market. The Fund will aim to outperform the benchmark of, the FTSE UK Government Index-Linked All Stocks, providing net of fees returns above that of the benchmark and also passive competitors.

Regarding Mike’s experience running gilt funds, we believe that the proof is in the pudding. While Mike Riddell managed the Funds, both the M&G Index-Linked Bond Fund and the Allianz Gilt Yield fund were the top performing all stocks funds in their sector3.

In line with the existing gilt strategy, we are introducing the new fund with very attractive fees. The ‘early-bird’ share class will have an Ongoing Charges Figure (OCF) of 0.20%, competitive with passive funds in the sector, available for the first £105m of investment, and then the I share class will then have an OCF of 0.30%. The Allianz Gilt Yield Fund I Inc share class currently has an OCF of 0.32%.

1The fund is the top performing conventional all stocks gilt fund in the IA Gilt Sector from 30/11/2015-29/12/2017, excluding all the funds in the IA Gilt sector benchmarked off long-dated gilt benchmarks. Source Data: Morningstar.

2Grossman & Stiglitz, On the Impossibility of Informationally Efficient Markets, 1980, The American Economic Review

3Compared to all funds benchmarked off the FTSE Index-Linked Gilt All stocks, so excludes long-dated benchmarks (01/03/2010-31/05/2015). Source Data: Morningstar.

Further information on Mike Riddell and our Allianz Index-Linked Gilt Fund can be found by clicking here.

Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested. Investing in fixed income instruments may expose investors to various risks, including but not limited to creditworthiness, interest rate, liquidity and restricted flexibility risks. Changes to the economic environment and market conditions may affect these risks, resulting in an adverse effect to the value of the investment. During periods of rising nominal interest rates, the values of fixed income instruments (including short positions with respect to fixed income instruments) are generally expected to decline. Conversely, during periods of declining interest rates, the values of these instruments are generally expected to rise. Liquidity risk may possibly delay or prevent account withdrawals or redemptions. Past performance is not a reliable indicator of future results. If the currency in which the past performance is displayed differs from the currency of the country in which the investor resides, then the investor should be aware that due to the exchange rate fluctuations the performance shown may be higher or lower if converted into the investor’s local currency. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer companies at the time of publication. The data used is derived from various sources, and assumed to be correct and reliable, but it has not been independently verified; its accuracy or completeness is not guaranteed and no liability is assumed for any direct or consequential losses arising from its use, unless caused by gross negligence or wilful misconduct. The conditions of any underlying offer or contract that may have been, or will be, made or concluded, shall prevail. This is a marketing communication issued by Allianz Global Investors GmbH, www.allianzgi.com, an investment company with limited liability, incorporated in Germany, with its registered office at Bockenheimer Landstrasse 42-44, 60323 Frankfurt/M, registered with the local court Frankfurt/M under HRB 9340, authorised by Bundesanstalt für Finanzdienstleistungsaufsicht (www.bafin.de). Allianz Global Investors GmbH has established a branch in the United Kingdom, Allianz Global Investors GmbH, UK branch, 199 Bishopsgate, London, EC2M 3TY, www.allianzglobalinvestors.co.uk, which is subject to limited regulation by the Financial Conduct Authority (www.fca.org.uk). Details about the extent of our regulation by the Financial Conduct Authority are available from us on request.

This article was provided by Allianz Global Investors and does not necessarily reflect the views of Citywire

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