Aviva Investors launches third fixed income fund

It injects derivatives whilst targeting a 3% per annum gross return over cash.

Aviva Investors, the global asset management business of Aviva plc, launched its third fund called the AIMS Fixed Income Fund as an expansion to its Aviva Investors Multi-Strategy (AIMS).

The fund has been registered under the Monetary Authority of Singapore’s (MAS) list of restricted schemes and is now available to accredited investors in Singapore and institutional and professional investors in Hong Kong.

According to an announcement, the fund aims to achieve a 3% per annum gross return over cash, represented by the European Central Bank (ECB) Base Rate (or equivalent), over rolling three-year periods.

The fund offers the flexibility to deliver consistent risk-adjusted returns for investors, by focusing on capital growth in all market conditions with lower volatility than traditional core fixed income approaches, Aviva Investors said.

“The fund selects investments on merit, constructing portfolios with an emphasis on absolute risk-adjusted returns rather than a benchmark-relative approach, and broadens the opportunity set using derivatives,” it added.

The fund invests in a diversified portfolio of 25-35 strategies drawn from across the global fixed income universe. These strategies are constructed into three categories: market strategies, opportunistic strategies, and risk-reducing strategies.

It is managed by senior portfolio managers James McAlevey, Orla Garvey and Joubeen Hurren, with the full backing of the firm’s global investment management capabilities.

Charles Wong, Aviva Investors head of wholesale distribution in Asia, commented that there is a pressing need for an uncorrelated source of alpha in fixed income, particularly with current rising rates causing significant drawdowns from sovereign bonds to emerging markets debt.

James McAlevey, senior portfolio manager, AIMS Fixed Income, added, “Falling interest rates over the last 25 years have created a tailwind for fixed income returns, which is unlikely to be repeated in the next five to 10 years. By using strategies within the portfolio that are much less dependent on the direction of fixed-income markets, the fund can diversify the risk factors embedded within traditional fixed-income portfolios.”

According to the group, risks include the value of an investment, the complexity of contingent convertible securities (coco bonds), and changes in interest rates that could affect bond values and the issuer’s creditworthiness.

“The fund uses derivatives; these can be complex and highly volatile,” it added. “This means in unusual market conditions the fund may suffer significant losses.”

“Certain assets held in the fund could be hard to value or to sell at the desired time or at a price considered to be fair (especially in large quantities), and as a result, their prices could be very volatile,” the group said.