Royal London Asset Management has launched a global index-linked bond fund aimed at hedging against potential inflation, but at higher yields than currently available in the UK.
Managed by George Henderson, the RLAM Global Index Linked fund seeks to provide annualised returns of 1% over its Barclays World Government Inflation-Linked Bond Index benchmark, over rolling three-year periods.
Sitting in the IMA Global Bond sector, the fund typically holds 30-60 positions, hedged to sterling.
Henderson believes a basket of overseas index-linked bonds can offer about 50bp of additional yield over a UK-focused fund.
"On a real yield basis, there are attractive yields available in a low growth environment going forward," he says.
"But we do not think UK linkers offer any value at the moment, longer-dated in particular.
"Investors who have concerns over inflation, and would like a real yield component, should consider looking globally."
At launch, the fund was overweight Japan, eurobloc and US inflation-linked bonds - with underweights to UK and Canada.
While RLAM expects inflation to be muted over the short term, the group expects it to pose longer-term concerns for investors.
"We are looking for growth to return this year and next, in the UK and other parts of the world," Henderson says.
"We see this growth being accompanied by inflation, not excessively high inflation, but still more inflation than markets are pricing in at the moment."
