Duration Hedged Credit Fund


Fund overview

The Fund aims to achieve a positive absolute return over rolling three year periods in all market conditions by investing in corporate bonds, while using derivatives to protect against interest rate risk. The majority of its assets are allocated to investment grade corporate bonds across a range of maturities, although it may also invest in UK government and other debt securities. The Fund actively manages duration to reflect the manager’s views of interest rates with a target duration of zero years.

Fund manager

The lead Fund Manager is Shalin Shah, he is supported by Fund Manager, Paola Binns.

Shalin Shah joined the Fixed Income Team at RLAM in mid-2008. Over the last eight years he has been involved in a variety of areas, with a particular focus on actively managing credit portfolios and working closely with RLAM’s Head of Fixed Income (Jonathan Platt) and Head of Credit Research (Martin Foden) on the development and management of RLAM’s Buy & Maintain credit strategies. Prior to joining RLAM, Shalin worked at PricewaterhouseCoopers LLP, where he was involved in advising clients on a variety of investment solutions, including LDI and strategic asset allocation. Shalin holds a BSc in MORSE (Mathematics, Operational Research, Statistics and Economics) from the University of Warwick and is a qualified actuary.

Investment approach

The manager's investment approach fully reflects our Fixed Interest Team's investment philosophy of achieving an attractive combination of value and security, while additionally applying a derivative overlay in order to hedge the interest rate risk associated with regular bond portfolios.

The team believe that bond markets are inefficient and that active managers can exploit valuation anomalies as they occur. In addition, by considering a wider investment universe than many of our competitors - including unrated and asset backed bonds and loans - the team aim to uncover value in many areas that are often overlooked. They are value investors, which means in practice that they emphasise their own research and prefer companies with sound long-term business models and bonds which offer strong covenant protection and asset backing. The managers believe that credit ratings are a lagging indicator and that bond investment is about assessing the probability of default and the recovery rate; and that credit markets are inefficient because too little emphasis is placed on the latter.

This philosophy is the basis of an investment process that has been built around a carefully structured team of experienced portfolio managers and credit researchers. The team are focussed on valuations and on achieving the greatest security of cashflows and diversification to limit stock-specific risks. Interest rate swaps are used to hedge the interest rate risk of the bonds in the portfolio, with a carefully structured and well-equipped team of derivative specialists implementing this element of the strategy.

Product Risk Warning

Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. Unlike the income from a single fixed income security, the level of income (yield) from a fund is not fixed and may go up and down. For funds that use derivatives, their use may be beneficial, however, they also involve specific risks. Derivatives may alter the economic exposure of a fund over time, causing it to deviate from the performance of the broader market. This fund can invest more than 35% of its value in government securities.