Fund overview
The Royal London Long Core Plus Bond Pooled Pension Fund is an actively managed portfolio which invests in a broad selection of long dated Sterling denominated fixed interest investments. The fund is benchmarked against the FTSE Over 15 Year Gilt Index and aims to outperform by 1.5% per annum, gross of fees, over rolling 3-year periods. The fund will invest mainly in Sterling credit bonds and UK government securities although the manager can hold other securities including overseas government bonds, index linked securities, non-sterling credit bonds and floating rate notes when thought appropriate. The fund makes use of interest rate swaps to extend duration, and other derivative strategies to manage the portfolio more effectively. In this way, clients are able to better match the interest rate sensitivity of the portfolio to that of their scheme without foregoing investment opportunities in wider fixed interest markets.
Manager
Overall asset allocation is determined by Jonathan Platt. He is supported by Paul Rayner and Paola Binns who have respective responsibilities for the government and credit components of the fund.
Jonathan brings a wealth of experience and leadership to the Fixed Interest team at RLAM. He joined the Royal London Group in 1985 and became Head of Fixed Interest in 1992. Jonathan has been instrumental in overseeing the development of the fixed interest process and remains committed to the management of client portfolios. Jonathan has an MA degree in Philosophy, Politics and Economics from Oxford University.
Investment approach
Central to the investment process is our belief that fixed interest markets offer inefficiencies that can be exploited by our experienced team. The fund aims to achieve outperformance from multiple sources (e.g. asset allocation, stock selection, duration and yield curve management as well as off-benchmark investing). The structure of the fund is likely to reflect our belief that credit bonds will outperform government debt in the long term.
Asset allocation and duration / yield curve positions are derived from our quarterly economic review. Stock selection within government bonds is aided by the use our own pricing model to highlight attractive relative valuation opportunities.
RLAM has an experienced credit team which firmly believes in its core philosophy of favouring “covenants, structure and security”. This means that we do not rely just on credit ratings; a key question for us is: “are we getting sufficient reward for the risk we are taking?”. In practice this means that we hold credit bonds that are excluded from credit benchmark (e.g. unrated bonds, smaller issue size bonds, sub-investment grade bonds and non-Sterling bonds) where we believe that valuations are attractive. Our approach allows us to focus on investing for the longer-term.
The fund will differ significantly from benchmark weightings. In particular, it is likely that the majority of assets will comprise Sterling credit bonds. To aid portfolio management the fund will use interest rate swaps to extend duration and may employ other complex derivative strategies (e.g. swap spread locks) to enhance long term returns. The asset allocation of the fund will be the key risk reflecting the credit profile of the fund.