Dimensional Fund Advisors today (2 May) launched the Dimensional Sterling Short Duration Real Return Fund aimed at investors seeking protection from unexpected UK inflation a way of maintaining potentially lower price volatility while pursuing a higher expected return through exposure to the credit premium.
Investors in index-linked gilts are limited to a relatively small number of mainly longer-duration securities. They are therefore subject to the interest-rate sensitivity and price volatility of their long duration exposure. Confined to government securities, investors also forgo one of the key components of fixed income’s expected performance, exposure to the credit premium.
Dimensional’s Sterling Short Duration Real Return Fund aims to address both shortcomings:
• To maintain potential lower price volatility, it invests in short-duration UK gilts (conventional and index-linked).
• To broaden the opportunity set and increase expected return, it also invests in short-duration investment-grade corporate bonds from the UK and elsewhere, dynamically varying its credit exposure using Dimensional’s time-tested approach.
An inflation hedge is added to the conventional gilts and corporate bond exposure through inflation swaps. Non-sterling currency exposure is hedged to GBP.
Nathan Lacaze, Co-CEO, Dimensional Fund Advisors said: “Dimensional’s goal is to provide investors with research-led investment solutions to the challenges they face. The past couple of years have reminded people how painful an inflation shock can be.
"This innovative strategy overcomes many of the compromises inflation sensitive investors can have to make.”
John Romiza, Co-CEO, Dimensional Fund Advisors said: “This is a great example of Dimensional’s client-focused approach to product development. Our clients asked for inflation protection, short duration and exposure to the credit premium, and we have delivered those components with this fund.”
