Looking to shield portfolios from higher interest rates and inflation?

Fixed income investors always keep a close eye on central banks’ interest rate trajectory – because the moment interest rates go up, bond prices fall. The most sensitive to interest rate changes are long term (long duration) bonds because they have more repayments remaining to maturity, and hence a higher risk of interest rates rises occurring during that time and affecting the price of the bond. It is a kind of a catch 22.

To complicate matters, inflation has increased globally and curve movements have been volatile. This has had a disproportionate effect on long term maturity bonds, which saw much higher volatility than their short term maturity peers.

As a result, many investors have been looking to reduce risk by shortening the duration of their fixed income portfolios and searching for shorter duration bond opportunities.

Please note that while floating rate notes offer excellent mitigation of the effects of interest rate changes, their yields are typically lower than those on corporate short duration bonds. In addition, the return on our inflation-linked solution will be strongly dependent on inflation and real rate movements. This means that the decision about which of the two solutions to use, and when, is likely to depend on the investor’s views about the timing of expected interest rate and inflation changes.

Candriam Bond Floating Rate Notes

Floating rate notes are structured to keep their price constant by periodically adjusting their rate to current market interest rates. This enables them to mitigate the risk of rising rates at an exceptionally low cost today. They are also used to lower the average duration of diversified bond portfolios.

• An effective solution to navigate a rising/volatile interest rate environment while benefiting from economic stimulus plans
• The strategy invests mainly in Euro-denominated investment grade corporate floating bonds, and is well-diversified across the Euro area.
• It uses fundamental analysis with ESG integration and typically targets a portfolio credit duration of about three years.
• Since its inception three years ago in September 2018, the strategy has been among the best performers in its peer group.
• Offers one of the lowest volatility profiles in the peer group [ditto]
• The fund offers diversification through its negative correlation to European sovereigns.

Sources: Barclays – Candriam

Candriam Bonds Global Inflation Short Duration

By definition, this strategy focuses on short duration, the segment of fixed income least sensitive to interest rate changes. It also aims to mitigate the effects of rising inflation in the Eurozone.

• Shorter duration inflation linked bonds offer efficient inflation mitigation
• Higher degree of inflation protection compared to longer duration inflation linked bonds
• Global and broad inflation-linked investment universe which includes some emerging markets with good ESG scores
• A distinctly flexible and robust approach to maintaining low sensitivity to interest rates (duration -1; +6 years¹)
• Distinctive features for diversified bond portfolios: ability to capture global commodity trends through complimentary FX strategies with a focus on commodity currencies

Source: Candriam, Bloomberg© - Indicative data which may change over time

Important Investment Risks

To fully understand the fund’s risk profile, we advise investors to carefully review the official prospectus and the description of the underlying risks.

 Candriam Bond Floating Rate Notes

• Credit risk
• Counterparty risk
• Risk related to financial derivative instruments

Candriam Short-Duration Inflation-Linked Bonds

• Risk related to financial derivative instruments
• Emerging countries risk
• Liquidity risk
• Sustainability risk

Past performance of a given financial instrument or index or an investment service or strategy, or simulations of past performance, or forecasts of future performance does not predict future returns.

¹ Indicative data which may change over time, these are not formal objectives of the fund as stated in its regulatory documentation.