The so-called ‘currency war’ has managed to claim the AXA WF Universal Inflation Bonds fund’s capital gains since its July 2012 launch in a single month.
Headed up by Jonathan Baltora, since inception to the end of August this year, the portfolio had notched up a return of 3 per cent in dollar terms.
But market conditions saw the portfolio shed 3 per cent in September on the back of a rally in the dollar, wiping the previous cumulative gains out with the fund now flat since its launch to October 6, according to data from FE Analytics.
Unconstrained by a benchmark, the fund aims to deliver a combination of income and capital growth by investing chiefly in inflation-linked bonds in the medium term, where the typical duration is roughly four and a half years.
The lion’s share of its assets, at close to 60 per cent, are currently invested in the US, where it has been increasing exposure this year on the back of the opportunities Mr Baltora has identified there.
On the performance fall, he said: “We are in a currency-war environment driven by the mass of quantitative easing markets have witnessed.
“In such a war, you cannot have your currency strengthen too much.
“Half of the performance comes from currency and half is from bonds. In September, the dollar rallied on the back of the Federal Reserve being more hawkish than expected.”
While investments in the world’s largest economy have expanded in 2014 within the fund, the manager in recent months has completely cut his 7 per cent exposure to euro-denominated inflation linked bonds.
This move means emerging market debt is a firm secondary play for Mr Baltora given the economic power developing nations are injecting into overall global growth.
“Our emerging market debt exposure is close to 30 per cent and it is a non-currency hedged strategy,” he said.
“We currently have investments in Brazil, Mexico and South Korea, as well as smaller countries such as Turkey and Israel.”
