Dimensional Fund Advisors has launched a short duration real return fund aiming to offer investors protection from unexpected UK inflation while pursuing a higher expected return through exposure to the credit premium.
The strategy seeks to address what Dimensional sees as ‘shortcomings’ associated with index-linked gilts. Investors are limited to a relatively small number of mainly longer-duration securities, and therefore are subject to interest rate risk and price volatility.
Meanwhile, investors confined to government securities also forgo exposure to the credit premium.
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The Dimensional Sterling Short Duration Real Return fund aims to answer these issues by investing in short-duration UK gilts to maintain lower price volatility, while also investing in short-duration investment grade bonds to vary its credit exposure.
The fund will also add an inflation hedge to the conventional gilts and corporate bond exposure through inflation swaps.
Nathan Lacaze, Dimensional Fund Advisors co-CEO, said: “Dimensional’s goal is to provide investors with research-led investment solutions to the challenges they face.
“The past couple of years have reminded people how painful an inflation shock can be. This innovative strategy overcomes many of the compromises inflation sensitive investors can have to make.”
