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QIC launches alternative to ILBs
Big Queensland-based institution Queensland Investment Corporation (QIC) has launched a new product: the QIC Global Fixed Interest Inflation Plus Fund.
The product, developed by QIC’s Global Fixed Interest boutique, has being marketed as delivering inflation plus returns with less volatility.
The company said the fund would actively manage interest rate and inflation exposures separately to deliver a return target of Australian Consumer Price Index plus 4 per cent a year over a rolling three-year period.
Announcing the new product, QIC Global Fixed Interest managing director Susan Buckley said the traditional approach to protecting against inflation from a fixed income perspective had been to invest in inflation-linked bonds.
“But this approach has a number of limitations which impact on investment outcomes,” she said. “Many investors don’t realize that a key risk in an inflation-linked bond benchmark is interest rate risk, not inflation risk,” she said.
“A typical inflation-linked bond benchmark can have nine years of interest rate duration, which can result in significant volatility for investors in what is often thought to be a conservative investment strategy,” Buckley said. “In a rising interest rate environment the long duration of these benchmarks can also lead to negative returns.”
AUTHOR
Mike Taylor
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