Focus on smart beta – AXA launches Sterling bond fund

AXA Investment Managers has launched a ‘smart beta’ bond fund for institutional investors seeking low-cost credit exposure without the drawbacks of passive issuance-based index tracking strategies.

The AXA Sterling SmartBeta Credit Bond Fund follows a ‘buy and monitor’ strategy, which aims “to capture the market return within the Sterling corporate bond segment by buying high quality credit and holding to maturity”.

Mark Benstead, portfolio manager and head of sterling credit, will manage the fund, along with Lionel Pernias, portfolio manager. Benstead said the fund was designed to offer “a wider range of clients access to a product specifically designed for today’s challenging market conditions, which combines the best of both active and passive approaches at low cost.”

The purchase price of a bond is critical to overall return of a buy and monitor strategy, AXA said. Therefore, “the strategy focuses on optimal portfolio construction and implementation at the time of investment in order to maximise the yield captured and minimise the need for turnover in the future.”

The fund is designed to recognise the damage that systemic and event risk can cause, AXA said, and is diversified in a way that “does not rely on inefficiently constructed issuance-based debt indices as a guide for portfolio construction (potentially leading to overweighting the most indebted issuers), but instead seeks to minimise over-concentration in issuers or sectors in a pragmatic way.”

The fund will focus on minimising turnover and where possible using low-cost entries to the market. AXA said this is “a smarter approach to coping with structural illiquidity in the markets”, which will minimise the corrosive effects of transaction costs on the fund’s performance.

“However, smart monitoring is also a key feature of the approach,” AXA said. “The philosophy is Buy and Monitor rather than Buy and Hold, and significant changes in the credit worthiness of bonds will result in portfolio rebalancing.”

The fund is a Ucits IV-compliant fund, with a minimum initial investment level of £2m.

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