The asset management arm of Barclays Capital has started marketing a Ucits III-compliant fund in Singapore designed to provide stable returns in both inflationary and deflationary cycles.
The Barclays Real Return USD Fund allows for a 70% allocation to fixed income, with flexibility between sovereign bonds and inflation-linked bonds. The remaining 30% is invested in a combination of commodities and cash, depending on market conditions.
The fund is registered in Singapore and is targeted at corporate, retail and private banking clients, although it is available for sale to the firm’s global investor base, subject to local registration requirements.
The fund was initially launched a month ago when it was offered to two wealth management firms, one being Barclays Wealth which made it available to high-net-worth clients. Barclays Capital Fund Solutions is now marketing the fund more broadly, although AsianInvestor understands it is only available by private placement in Hong Kong.
Paul Hopkins, the Asia head of Barclays Capital Fund Solutions, notes that the fund invests in liquid assets, backed by the strict risk management and governance processes within the Ucits III framework.
Barclays Capital Fund Solutions back-tested its real return strategy to 2000 and built its own Income Plus Index in February 2007 as a way to track the strategy's performance.
The strategy is reset on a monthly basis based on signals run through a quantitative model by the asset manager's portfolio engineering team in London, where it centralises all of its investment activity.
The index recorded a 9.73% gain in 2008, 10.91% in 2009 and 6.68% in 2010, while this year it’s running at 5.49% to the end of May.
Hopkins says this launch was timed to capitalise on investor demand for inflation protection, now that the strategy has built a three-year live track record.
“No one asset type allows you to protect against both inflationary and deflationary cycles,” he explains. "Commodities offer protection in certain parts of the market cycle, as do inflation-linked bonds in other parts of the cycle.
“What we found from back-testing is that a combination of those [assets] reset on a monthly basis gives you the best outcome in terms of an inflation play, or indeed in a deflationary part of the cycle.”
While he acknowledges that other such products exist, he says he has not found any that have generated the returns that the Income Plus Index has.
Asked why it was launched in US dollars, he replies: “Transferability. Firstly, clients are relatively comfortable with buying a US-dollar-based product. Secondly, there is a limited pool of inflation-linked bonds in any other country, and one of the things we stand by is underlying liquidity provision to the investor. That is why we provide products with daily liquidity.”
Hopkins believes the product is marketable to retail, corporate and institutional investors. “We have built a product that is suitable from the ground up to sovereign wealth.”
He adds: “Part of our ongoing build-out as we globalise our capability is to deliver an Asian product set which meets the required regulatory expectations as well as those of the broad investor base.”
The firm’s real return fund offers share classes in US dollars, Singapore dollars and Australian dollars. Investment management fees are set at 1.75%, with fixed costs covering administration and custody of 0.2%. There is a preliminary charge of up to 5% payable to sub-distributors.
Barclays Capital Fund Solutions globally comprises 140 staff managing £4.1 billion ($6.7 billion) in assets. It was started in Europe in 2008 and has slowly expanded into the US and Asia.
Asia now represents 28%, or $1.8 billion, of its global assets and about 25% of its resources. “It is a good business to have developed so far and I have a lot more to do in the region,” stresses Hopkins.