Groupama Asset Management launches an inflation-theme absolute performance fund

Managed under an absolute return approach, G Fund – Global Breakeven Inflation aims to exploit valuation inefficiencies in inflation outlook across the markets. These inefficiencies create the opportunity to set up long or short positions in the inflation asset class, including during interest rate hike cycles. This type of breakeven inflation strategy makes perfect sense in a context of steepening rates driven by resurgent inflation.

G Fund – Global Breakeven Inflation offers a dynamic opportunistic investment approach free of benchmark constraints, based on the analysis of fundamental indicators and valuations using techniques which identify profitable value-creating strategies in the global sovereign debt markets. The fund’s investment universe is composed primarily of sovereign issuers among developed markets and, to a lesser extent, emerging market issuers as well as forex markets.

The investment management team draws on all relative performance drivers within the inflation theme, integrating particularly strategies involving inflation-linked bonds, inflation swaps, arbitrage positions between yield curves and maturities, as well as regional allocations.

As with all of Groupama AM’s unconstrained strategies, this flexible security selection process is implemented within a stringent risk management framework, both in terms of diversification and other specific risks including market beta exposure (volatility and sensitivity coefficients).

 

3 key performance drivers

The fund captures performance through its 3 strategies: “directional inflation”, “relative value” (between fixed-income asset classes, regions and bond-picking), and “insurance-based” (through inflation swaps and currency exposure).

Each of these performance drivers is allocated a risk budget based on anticipated volatility, expected returns and the team’s medium-long term views. Thierry Goudin explains: “the current macroeconomic environment, characterised by a normalisation towards higher inflation outlook and steepening interest rates, means that flexible fixed-income solutions providing protection have become all the more necessary. We are therefore focusing our efforts on actively developing our range of unconstrained bond funds.”

The fund managers Nicolas Dubus and Laurent Pommier add that “G Fund – Global Breakeven Inflation aims to capitalise on divergent inflation outlook between regions or asset classes, particularly in terms of shifts in monetary and economic cycles and global inflation anticipations.”

For the fund managers, “the breakeven inflation theme represents a source of absolute performance, while insulating fixed-income portfolios against sharp rises in interest rates, as structural duration risk is mitigated.”

“The strategy involving arbitrage positions between yield curves and maturities, as well as among regional allocations, is clearly relevant as cyclical inflation in the US strongly influences the 2 – 5 year segment of the curve, while 5 – 10 year maturities are more sensitive to improved confidence in the Eurozone.”

• Fund name : G Fund Global Breakeven Inflation
• ISIN code : LU1717592346 I share class
• Classification : Global Fixed-income
• Legal form : Sub-fund of the Luxembourg-domiciled G Fund SICAV fund
• Benchmark : Capitalised Eonia
• Fund structure : UCITS
• Capitalisation / distribution : C
• Bloomberg code : GFGBICE LX
• Net assets : EUR 89.91m as at 27.03.2018
• NAV frequency : Daily
• Subscriptions / redemptions : Daily cut-off at 12 midday Luxembourg local time Unknown NAV. Settlement +3 days
• Maximum management fees (%) : Fixed: 0.40% – Variable : Nil
• Subscription fees (%) : Accruing to the fund: Nil – Non-accruing to the fund: 4%
• Performance fees (%) : 10% of performance net of fees in excess of the positive performance recorded by the benchmark Capitalised Eonia index. If Eonia records a negative performance, the performance fee applies above zero.
• Redemption fees (%) : Accruing to the fund : Nil – Non-accruing to the fund: Nil
• Transaction fees : YES
• Custodian : CACEIS BANK, Luxembourg Branch