We asked Mike Riddell, co-manager of the Allianz Strategic Bond Fund, what sets his fund apart
The goal that really differentiates us is correlations. We launched this fund in 2016, knowing that many strategic bond funds are heavily invested in investment grade and high yield corporate bonds, and therefore behave like equities to a large extent.
We wanted to create something uncorrelated to equities - a diversifier, a true bond fund. We are seeking a zero correlation between our fund and global equities, call it MSCI World, over a rolling 3-year period (not over every day or every week), but up to a target maximum of plus 0.4 over a 3-year period.
What else sets you apart?
Aside from correlations, two other goals differentiate us: flexibility and asymmetry. We have a lot of flexibility away from our benchmark, the Bloomberg Barclays Global Aggregate (FX hedged), whether that's being able to have half of the fund in high yield, if we think high yield is very attractive; use currencies that aren't in our benchmark; take positions in inflation markets, both long and short, around the world, that are not in our benchmark; and take yield curve and duration views, again meaningfully away from our benchmark.
Can you give a specific example?
For example, benchmark duration is 7.2 years. In theory we can be between zero and 12 years, and in reality we've been between 3.5 and 11 in the last 18 months or so. So we don't only have flexibility - we use it. The result is that we think we can generate alpha per year of around 200 basis points, though that is a goal and certainly not written in stone.
As for the third goal - asymmetry - put simply, when we're right we want to make more money than the amount of money we lose when we're wrong!
Click here to read how Mike and co-manager Kacper Brzezniak turn macro outlooks into investment strategy
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