A fund that gives investors risk-controlled exposure to
bonds at a time when the asset class may see the end of more than three decades
of a bull run has been launched by Aquila Capital, a European firm.

Aquila Capital has rolled out the AC – Risk Parity Bond Fund,
which it describes as the “world’s first risk parity strategy to focus solely
on fixed income”.

The strategy, Aquila Capital said, is aimed at investors who
wish to retain substantial exposure to fixed income despite any challenges that
may face the asset class. It targets a return of cash plus 3 per cent with
annualised volatility of approximately 3 per cent.

The fund applies a systematic allocation method that does
not rely on forecasts or duration targeting, while being as diversified as
possible across instruments, return drivers, geographies and durations. This is
achieved, Aquila Capital says, through investing with equal risk weightings
across four uncorrelated types of fixed income asset: government bonds, corporate
bonds, carry positions in emerging markets and inflation-linked bonds.

“These assets also have varying correlations with the
economic and fixed income cycles. As such, this combination allows positive
long term return targets regardless of whether rates are rising, falling or
flat,” the firm said.

Explaining the fund’s “risk-parity” approach, Torsten von
Bartenwerffer, senior portfolio manager at Aquila Capital, said: “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 fund, which is set up as a Luxemburg-based UCITS (SICAV), has a minimum investment of €50,000 ($64,467). It applies the same allocation
principles as Aquila Capital’s long established and multi-asset AC Risk Parity
strategy.