Specialist fixed income fund manager Ardea Investment Management has celebrated the five-year milestone of its flagship fixed income fund – the Ardea Australian Inflation Linked Bond Fund – and predicts ongoing demand for defensive long-term assets as a protection against inevitable market changes.
The manager revealed its funds under management had grown by approximately 30% to over $5.5bn over the past 12 months, with demand being driven by new and existing investors seeking defensive strategies to balance the volatility in equity-heavy portfolios.
Ardea Principal and Portfolio Manager, Tamar Hamlyn, cautioned investors against complacency in the low-rate, low volatility and low inflation expectation market environment. While he predicts inflation will remain low in the short term, he urged investors to consider the medium and long-term implications of changes to current market expectations.
“Central banks around the world are sidelined due to growth concerns. We believe inflation will remain low in the short term, but will rise over the next few years as a lower Australian dollar, possible taxation increases and rising health and education costs begin to exert themselves.
“We are seeing low rates, low volatility and low inflation expectations in the current market; however it would be a mistake for investors to expect this to last. A slight backlash in any one would damage most investors significantly; a correction of all three could be catastrophic,” Mr Hamlyn said.
Debt investments become better understood
In addition to market conditions, Mr Hamlyn credits the growing popularity of the Ardea funds to an increasing understanding of debt investments by super funds, as well as Ardea’s experienced team and consistency in approach.
“Over the past few years there has been a strong shift to mandates that focus on absolute returns, rather than just the market beta, driven primarily from super funds. Delivering a stable return above inflation is at the core of almost every super fund’s objective, and inflation-linked bonds are a natural fit for their long-term protection against inflation.
“Australia’s use of the inflation-linked debt market is still comparatively low and sits at about ten per cent of total government debt, compared with other developed countries like the United Kingdom where the figure is closer to thirty per cent. Greater use of fixed income, including inflation-linked investments, is fundamental to a diversified portfolio,” Mr Hamlyn said.
In response to ongoing growth, Ardea founders and principals Tamar Hamlyn, Ben Alexander, Andrew Bartlett and Stephen Clout, have expanded the firm’s research and investment capabilities, adding two additional staff in the past two years.
The Ardea Australian Inflation Linked Bond Fund has returned 10.84% p.a. (after fees and expenses) over five years to 31 March 2015, delivering returns 1.26% p.a. in excess of its benchmark (Bloomberg Aus Bond Govt Inflation Index 0+). The fund aims to deliver risk-managed exposure to the fixed income investment market to its institutional and wholesale clients.
