- Nearly three quarters (72%) of European institutional investors say fixed income market is ‘challenging’ or ‘very challenging’
- 76% find it difficult to forecast the timing and direction of future interest rate movements
- Half (50%) of investors would consider using a risk parity strategy
- Aquila Capital’s ACQ Risk Parity Bond Fund reaches first anniversary with 3.67% 1 year-to-date return
A new study 2 by Aquila Capital, one of Europe’s leading independent alternative asset managers conducted among European institutional investors reveals almost three-quarters (72%) describe market conditions for fixed income investors as ‘challenging’ or ‘very challenging’, a 6% increase from a year ago 3 .
The research shows over three quarters (76%) of investors say it is ‘difficult’ to forecast the timing and direction of future interest rate movements over a three year period, including 13% who say it is ‘very difficult’. Furthermore, the prospect of rising interest rates is currently seen by investors as the greatest challenge to investing in bonds.
The research was commissioned to mark the one year anniversary of Aquila Capital’s ACQ - Risk Parity Bond Fund (the ‘Fund’), the world’s first risk parity strategy to focus solely on fixed income.
The Fund aims for long term stable returns regardless of whether interest rates are rising, falling or flat. It targets a return of cash plus 3% with annualised volatility of approximately 3%. Year-to-date, the Fund has generated a return of 3.67% which is line with strategy.
Aquila Capital’s research underlines the increasing attractiveness of risk parity as exactly half (50%) of investors would consider using a risk parity strategy rather than a sector-centric management approach to their fixed income portfolios.
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. It does this through investing with equal risk weightings across four types of fixed income asset that have a low correlation with one another. These are 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.
According to the research, corporate bonds are the most popular fixed income asset held by 92% of investors. This is followed by government bonds (79%); high yield bonds (55%); emerging market debt (50%); and inflation-linked bonds (38%).
Commenting on the research, Stuart MacDonald, Managing Director at Aquila Capital, said:
“Fixed Income investors are finding conditions increasingly challenging and are particularly concerned about possible interest rate rises. Given this context it is understandable that risk parity, which offers investors a diversified and liquid alternative to their current fixed income assets, is likely to feature in a growing number of portfolios. One year on, the AC Risk Parity Bond Fund has demonstrated its ability to perform in line with its strategy and is gaining traction among long-term conservative investors.”
The Fund, which is set up as a Luxembourg-based UCITS (SICAV) has a minimum investment of EUR 50,000. It applies the same well-proven risk parity allocation principles as Aquila Capital’s long established and successful multi-asset AC Risk Parity strategy (including the AC Risk Parity 7, 12 and 17 funds), which have delivered strong risk-adjusted returns since 2004, including positive performance in 2008.
*Data as at 31 May 2013
1Source: Research carried out among 75 institutional investors across Europe between June 2 -12, 2014
2Source: Research carried out among 165 pension institutional investors across Europe between June 3 -10, 2013
- 1 Data as at 31 May 2013
- 2 Source: Research carried out among 75 institutional investors across Europe between June 2 -12, 2014
- 3 Source: Research carried out among 165 pension institutional investors across Europe between June 3 -10, 2013
About Aquila Capital
Established in 2001, Aquila Capital is committed to provide institutional investors worldwide with alternative investment solutions in real assets, financial and private markets. Applying a multi-disciplinary investment approach, Aquila Capital’s range of alternative investments is managed by dedicated specialists in their respective asset classes and underpinned by an infrastructure that combines strong operations, stringent corporate governance and a successful track record. Aquila Capital has been dedicated to develop alternative investment solutions since its establishment. Over 200 professionals across eight offices globally are working across the whole value chain of alternative investments to generate stable, positive returns for investors.
Patrick Evans / Lydia Cambata
Citigate Dewe Rogerson
Tel: +44 (0)20 7638 9571