At a time when the outlook for fixed income is so uncertain, the firm said the objective was to offer investors “long-term stable returns regardless of the twists and turns in the economic and fixed income cycles”.
Claimed as the “first strategy of its kind in the market” the fund will blend the diverse characteristics of the uncorrelated asset types in the fixed interest universe from which sustainable risk premia can be extracted.
It will use the risk parity allocation principles Aquila Capital already deploys in its multi-asset AC risk Parity strategy, which includes the AC Risk Parity 7, 12 and 17 Funds.
The Risk Parity Bond Strategy will invest across four types of fixed income – government bonds, corporate bonds, carry positions in emerging markets and inflation-linked bonds – each of which it says is uncorrelated to the others.
The company said correlations of each of these assets to different phases of the economic and fixed income cycles are also highly varied, meaning if one goes down then one or more of the others should rise.
Stuart MacDonald, managing director at Aquila Capital, said: “Aquila’s Risk Parity Bond strategy provides an effective antidote to the current uncertainties faced by so many institutional and other investors who need to maintain fixed income exposures in their portfolios.
Many market commentators see a “great rotation” from bonds to equities, driven by economic recovery, rising interest rates and a pursuit of higher returns. This is seen as likely to end the 33-year bull market in bonds.
“Since approximately 50% on a risk-weighted basis of the Risk Parity Bond portfolio is correlated to equities, the strategy should perform in this scenario. Since the other half of the risk within the portfolio is allocated to core fixed income markets, if they remain steady or rise, then the strategy will also benefit.”
Alternative investment manager Aquila Capital is part of the Hamburg-based group of Aquila companies which also includes Luxembourg based Alceda Fund Management, and AQX Securites in Zurich.
