Atlantic House Investments has launched a new strategy, to be known as the Atlantic House Dynamic Duration Fund.
The strategy is designed to perform in both inflationary and deflationary environments by systematically pivoting between exposure to conventional fixed income and target exposure to inflation itself.
Lead managed by deputy CIO Mark Greenwood, the strategy utilises three liquid instruments – government bonds, interest rate swaps and inflation swaps – equally applied between the UK and US markets. It tilts its exposure to fixed income and inflation-linked assets based on three clear systematic signals: inflation trends (Inflation Trend), real yields (Market Inflation Credibility) and current levels of core inflation relative to central bank policy targets (Central Bank Credibility).
These three signals provide an estimation of the likelihood of a future increase or decrease in UK and US interest rates and inflation which in turn systematically determines the Fund’s positioning across fixed income and/or inflation, as follows:
- Inflation Trend – Downward trending inflation may lead central banks to cut interest rates, increasing the value of fixed income assets while, conversely, inflation trending up may favour investments in inflation swaps.
- Market Inflation Credibility – A higher real yield on inflation-linked bonds indicates a market expectation of lower inflation increasing the appeal of fixed income. A negative real yield, meanwhile, implies higher inflation which favours inflation swaps.
- Central Bank Credibility – If core inflation is below target, central banks are less likely to increase interest rates making fixed income attractive. However, if it is above target, investors may benefit from investment in inflation swaps.
Tom May, chief executive officer, Atlantic House Investments commented: “Choosing how much duration to own in a multi-asset portfolio is both highly-challenging and highly-important. This new strategy introduces a systematic approach to this. We believe that multi-asset investors can use it alongside more traditional fixed income exposures to better diversify portfolios and enhance returns during periods when the inflationary environment is changing rapidly.”
Mark Greenwood, deputy CIO, Atlantic House Investments added: “The Atlantic House Dynamic Duration fund is a strategy designed for investors seeking the diversification from equities that they might have looked to conventional bond funds to provide. The duration exposure of such funds can create substantial risks in an environment of changing interest rates as it is notoriously difficult for fund managers to navigate these shifting currents. However, the systematic approach applied by this new strategy offers the potential for performance in both inflationary and deflationary environments by tilting dynamically to fixed income or inflation assets.
“The strategy draws on the deep derivatives expertise at Atlantic House Investments, whilst its systematic approach can complement multi-asset investors’ exposure to active strategies by eliminating individual behavioural biases.”
