The case for active management in global index linked bonds

Global index-linked bonds are designed to provide investors with exposure to real interest rates across a diversified geographic opportunity set, while helping to mitigate the effects of inflation.

After a prolonged period of financial repression, real yields across many developed markets have reset meaningfully higher and now sit at levels that we believe look attractive on a long-term historical basis. With global interest rates towards the top of their range over the last few decades, the asymmetry for a downward path in a number of major economies is likely over the medium term.

In our view, global linkers can offer the potential for capital gains through falling real yields, while also providing diversification across different inflation regimes, fiscal dynamics and central bank reaction functions. In this environment, dispersion across maturities, breakevens and markets remains elevated, reinforcing the case for active management. 

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For professional investors only. This material is not suitable for a retail audience. Capital at risk. This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. Reference to any security is for information purposes only and should not be considered a recommendation to buy or sell.

Investment risks

Investment Risk: The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. 

Credit Risk: Should the issuer of a fixed income security become unable to make income or capital payments, or if their credit rating is downgraded, the value of that investment will fall. Fixed income securities with lower credit ratings may offer higher levels of income but also carry an increased risk of default. 

Efficient Portfolio Management (EPM) Techniques Risk: The funds may engage in Efficient Portfolio Management techniques, including the use of derivative instruments. While these techniques are intended to reduce risk, their use may expose the fund to increased price volatility. 

Exchange Rate Risk: Investing in assets denominated in a currency other than the base currency of the funds means the value of the investment can be affected by changes in exchange rates. 

Interest Rate Risk: Fixed interest securities are particularly affected by trends in interest rates and inflation. If interest rates rise, the value of capital may fall, and vice versa. Inflation will also decrease the real value of capital.

Liquidity Risk: In difficult market conditions, the value of certain fund investments may be difficult to assess and harder to sell, or may only be sold at an unfavorable price, resulting in unpredictable falls in the value of your holding.

Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparties to derivatives or other instruments may expose the funds to financial loss.

Charges from Capital Risk: Charges are taken from the capital of the funds. While this may increase the yield, it also has the effect of reducing the potential for capital growth.

Government and Public Securities Risk: The funds can invest more than 35% of net assets in transferable securities and money market instruments issued or guaranteed by any EEA state, its local authorities, a third country, or public international bodies of which one or more EEA states are members.