Pioneer Investments has launched a global inflation-linked short-term strategy as an approach to managing against inflation risk.
The firm says the strategy aims to protect investors’ purchasing power and returns against inflation through the use of low duration global inflation-linked bonds.
The use of 1-5 years inflation-linked government bonds helps the strategy to be correlated with realised inflation in a low rates environment, as opposed to expected inflation.
“Often, the discussion about inflation risk only starts after it is already a problem and inflation hedges are expensive,” says Cosimo Marasciulo (pictured), head of European government bonds. “Current market conditions can offer an attractive opportunity to start building or increasing an inflation protection position, as inflation protection is still relatively cheap. In our opinion, investors can benefit from early entry at the bottom of the long-term inflation cycle.”
Pioneer believes inflation-linked bonds are a key component of an effective asset allocation to protect against inflationary pressure and enable exposure to real returns across the entire cycle.
“Investing in shorter duration Inflation-Linked Bonds that closely track inflation may provide further protection as they display less interest rate risk than longer duration bonds,” says Marasciulo. “Furthermore, the global approach of this strategy may reduce country-specific risks and enhance real returns leveraging on divergent inflation, real yields and monetary policies expectations.”
To reduce unwanted volatility and allow a precise exposure to inflation, the strategy hedges non-Euro exposure back to Euro, but offers currency hedged share classes in all major currencies.
The strategy will be managed using Pioneer Investments’ Fixed Income Alpha Strategy Matrix under the direction of lead portfolio managers Marasciulo and Semin Soher, senior portfolio manager. The team focuses on the separation of alpha from the core strategy by actively seeking out the most attractive markets. The emphasis is on taking small amounts of risk across many uncorrelated positions. Risk takers are held accountable for their specific markets and alpha strategies.
