Asset Manager Overview
Royal London Asset Management (RLAM) was established in 1988. RLAM is a private limited company and a wholly-owned subsidiary of the Royal London Mutual Insurance Society Limited (RLMIS). RLAM offers a broad range of investment strategies across a range of core asset classes including, but not limited to; cash, equities, fixed income, property and absolute return. As at 30th September 2024, total assets under management were £170.3 bn.
RLAM have a long history of success, delivering key investment solutions for its clients. Royal London is owned by their customers and therefore takes a slightly different approach to other companies. They do not follow investment fashions and believe in the power of active management. RLAM give their investment teams the freedom and flexibility to take non-consensus positions.
Fund Manager/Team Overview
The fund is managed by Paul Rayner, Head of Alpha Strategies within the Rates and Cash team at Royal London Asset Management (RLAM). Mr Rayner joined Royal London in 2005, having previously worked at SG Asset Management, and has over 25 years of experience in fixed income markets.The deputy manager for the fund is Ben Nicholl, he is responsible for quantitative bond modelling within the team and also focuses on the management of the Short Duration Gilt and UK Government Bond funds. Prior to his current role he worked within RLAM's Far East Equity and Asset Allocation teams.
In managing the fund, Mr Rayner and Mr Nicholl are supported by the wider Rates and Cash team, which they sit within and there are currently eight members in total. Additionally, the managers work closely with the firms senior economist, Melanie Baker, who forms economic forecasts which the team uses as part of their wider analysis. The managers can also, where required, lean on the wider resource within the Fixed Income capability, such as their peers sitting in the Sterling Credit or Global Credit teams.
Investment Philosophy & Process Overview
The managers believe that government bond markets are not fully efficient at all times and that active investors can take advantage of inefficiencies to outperform the benchmark. In particular, the managers believe that whilst long term performance is driven by fundamentals, in the shorter term markets are likely to trade away from their long term value because of sentiment, technical and regulatory issues. The fund is therefore designed to benefit from both medium to long term strategic positioning, but also short term trading opportunities through stock selection.
The process begins with a top-down evaluation of macroeconomic factors, focusing on long-term economic value. This assessment is carried out by RLAM's Senior Economist, Melanie Baker, and forms the basis for short, medium and long range yield, interest rate and inflation forecasts which are used to project returns and underpin the strategic positioning of the fund. These forecasts are made independent of the market in order to avoid bias and then compared to those factored into the market. The managers look to buy bonds which they believe the market has mispriced from an economic perspective, or where they believe the market premium is inconsistent with the technical situation. Position sizes are determined by the size of the mispricing and the level of conviction which the managers have in the mispricing. Individual stock selection is a bottom-up process driven by both economic views and value assessment. All the bonds in the universe are put through a proprietary government bond relative value pricing model which highlights both cheap and expensive securities, and this is used to assist security selection and to monitor current positions.
The process should result in a portfolio with varied sources of returns which may include interest rate positioning, yield curve positioning, cross-market (UK versus overseas bonds) trades and inflation-linked versus conventional (non inflation linked) bond trades. Security selection is likely to be important in the short to medium term. The fund will be at least 80% invested in UK index-linked government bonds. Up to 20% of the fund can be invested in off-benchmark holdings, which include conventional UK Government bonds, index-linked corporate bonds and overseas government bonds both conventional and index-linked. Interest rate risks are managed within a fairly tight range around the benchmark. Given the nature of this market, the maturity profile of the fund can be lengthy, typically in excess of 15 years, and the fund price will therefore be sensitive to changes in bond yields.