Aquila Capital Launches "All Weather" Fixed Income Fund As Market Uncertainty Builds

Tom Burroughes

5 July 2013

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 , has a minimum investment of €50,000 . It applies the same allocation principles as Aquila Capital’s long established and multi-asset AC Risk Parity strategy.