The latest fund tip, hand-picked by our Investment Guidance team
Fund of the Month October
Allianz Gilt Yield
This month we look at a fund which is suitable for the more risk-averse investor Allianz Gilt Yield. Gilts are issues by the UK Government to raise capital to spend on projects such as building roads and with the UK government never having defaulted they are generally regarded as a risk-free investment. Investors have traditionally considered gilts a good place to shelter money when markets are looking volatile.
Reasons to buy
- Preservation of capital is important to this defensive portfolio investment, whilst offering a low to moderate level of income yield with the potential for some capital growth.
- Highly regarded and experienced manager who has the support of a well-resourced team of fixed income specialists.
- Consistent, above benchmark performance over last 5 years.
- Low ongoing charge figure of 0.32% makes it an attractive option for investors to whom cost is important.
Things to be wary of
- Investors are accepting a slightly higher degree of risk when compared to cash deposits.
- Investors should appreciate, that capital could be eroded when interest rates start to rise as bond prices move inversely to yields.
- Risk and reward generally go hand in hand in investing, with low risk approaches as a rule resulting in lower returns than high risk strategies.
About the fund
The Allianz Gilt Yield fund is managed by Mike Riddell and seeks to outperform the FTSE Gilts All Stocks benchmark in a relatively consistent and incremental manner, without taking significant relative risk. He is supported by an experienced team of rates, credit and sector specialists.
The team aim to maximise total returns through a prudent and stringent management process, underpinned by longer-term analysis of the prospects for the UK economy and the gilt market. A number of factors will be taken into account such as long-term yields, economic growth, inflation and Central Bank policy.
Investments are restricted primarily to UK government bonds however the fund has the potential to invest up to 5% in credit, albeit this is unlikely.
Portfolio positioning and performance
Over the last year the fund has shifted its duration stance to have more of a focus on longer term debt issues. This means the fund's price is more sensitive to changes in interest rates - standing to benefit the fund in a lower rate environment.
The portfolio is quite concentrated with the top 6 holdings making up c.50% of the fund. At the time of writing the fund is almost entirely invested in UK government bonds. The modified duration on the portfolio is currently 12.8 years and the distribution yield is 0.40%. Whist the yield may seem quite low this is a reflection of the low rate environment we are in, as well as the limited yield potential of bonds with high credit quality.
In terms of performance, the fund ranks reasonably highly within the sector over both three and five years as well as delivering respectable annualised returns of 5.79% since inception. The fund has also used a similar level of risk compared to the peer group, meaning risk-adjusted returns are quite strong. With an ongoing charge figure of 0.32%, the fund is also one of the cheaper actively managed strategies within the sector, making it an attractive option for investors in a sector where cost is increasingly important.
Generally, investing in gilts is perceived to be more of a defensive portfolio investment and traditionally has offered attractive income yields with moderate potential for some capital growth, albeit preservation of capital is generally more important. However, unusual economic conditions since the financial crisis have led to record low interest rates and low yields on government bonds. Despite this, investors are still attracted to gilts due to the perceived safety in comparison to other assets.
All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.