UK – State Street Global Advisors has launched an active gilt, or UK government bond, strategy aimed at UK pension funds.
The strategy is designed to meet the growing needs of pension funds to match liabilities whilst simultaneously seeking to add relative or absolute returns, and centres on expanding the universe of securities.
There are two parts to the strategy: beta exposure, which allows pension funds to allocate to an asset class that is aligned with their funds’ liabilities, and an alpha strategy which takes advantage of the vast opportunities presented by global bond and currency markets in order to add value.
Essentially, SSGA will be applying its active global fixed income philosophy and process as an overlay to the UK Gilt All Stock portfolio.
This process includes: global bond overlay, which is designed to add value by exploiting the differential in returns between developed bond markets; currency overlay; relative value; and yield curve, by which positions are taken between shorter and longer parts of the curve in order to exploit steepening or flattening movements.
Risk is controlled by careful portfolio construction which ensures that no single active position is allowed to dominate.
Traditional gilt strategies are limited by the amount of investable securities contained within conventional and index linked benchmarks, but says Vincent Kok, head of international fixed income at SSgA: “We believe that unless a wide variety of out-of-index securities and long-short derivative overlays can be used, traditional UK active gilt management will not be successful in the future.
“This strategy offers a solution to pension funds as they increasingly focus on managing their liabilities whilst simultaneously seeking to add relative or absolute return.”
SSGA has 901 billion dollars in assets under management worldwide.
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