Lombard Odier and IST launch sovereign bond fund
Lombard Odier Investment Managers (LOIM) is to launch a sovereign bond fund using its fundamental weight driven (FWD) benchmark approach.
The launch is part of its cooperation with IST Anlagestiftung, the largest independent investment platform dedicated to Swiss pension funds. LOIM now manages 1.4 billion Swiss francs on behalf of IST, including investments in convertible bonds, Swiss equities and Swiss real estate.
Stéphane Monier, chief investment officer of Fixed Income and Currencies at LOIM, said: “Our approach provides IST and its clients with a solution that maximises returns on a risk-adjusted basis and is tailored to meet their specific requirements. After pioneering fundamentally weighted benchmarks three years ago we now have more experience than any other asset manager in this approach and are delighted to offer IST this flexible solution.”
This new global bond fund, “IST Governo Welt Fundamental,” gives IST clients the opportunity to invest in sovereign debt on the basis of a country’s liquidity, macroeconomic strength and socioeconomic stability; rather than the traditional bond index approach which lends more to those which are most indebted. IST Governo Welt Fundamental will invest according to the ability of issuers to repay their debts.
LOIM manages over 2.5 billion Swiss francs across five funds that use the FWD approach.
Markus Anliker, chief executive at Zurich-based IST Anlagestiftung, said: “Lombard Odier’s Fundamentally Weighted approach has a powerful track record and makes them the best manager for our innovative and future-oriented funds offer.”
LOIM’s FWD approach assesses liquidity according to the size of a country’s GDP while macroeconomic strength is gauged using GDP growth, since a faster-growing economy will generate more tax receipts to service its debts. Countries with high debt-to-GDP ratios have a lower weighting in our FWD benchmark, which is exactly the opposite of what happens in market capitalization benchmarks.
The foreign net ownership of debt is also captured by LOIM’s FWD benchmark, since countries that receive a significant amount of funding from foreign investors are at risk of capital flight. In addition, countries with lax fiscal discipline and poor budgets have a lower weighting in the FWD benchmark, while those with current account surpluses are competitive in the global economy and therefore receive a higher weighting.
Since the cost of aging populations is not fully reflected in countries’ balance sheets, political risk is likely to increase over coming decades and we therefore take this into account by lowering the weightings of such countries.