Dimensional Launches Sterling Short Duration Real Return Fund
Dimensional Fund Advisors Ltd. today announces the launch of the Sterling Short Duration Real Return Fund. The fund offers investors seeking protection from unexpected UK inflation a way of maintaining potentially lower price volatility while pursuing a higher expected return through exposure to the credit premium.
Investors in index-linked gilts are limited to a relatively small number of mainly longer-duration securities. They are therefore subject to the interest-rate sensitivity and price volatility of their long duration exposure. Confined to government securities, investors also forgo one of the key components of fixed income’s expected performance, exposure to the credit premium.
Dimensional’s Sterling Short Duration Real Return Fund aims to address both shortcomings:
- To maintain potential lower price volatility, it invests in short-duration UK gilts (conventional and index-linked).
- To broaden the opportunity set and increase expected return, it also invests in short-duration investment-grade corporate bonds from the UK and elsewhere, dynamically varying its credit exposure using Dimensional’s time-tested approach.
An inflation hedge is added to the conventional gilts and corporate bond exposure through inflation swaps. Non-sterling currency exposure is hedged to GBP.
Sterling Short Duration Real Return Fund Portfolio Construction
Nathan Lacaze, Co-CEO, Dimensional Fund Advisors Ltd., said: “Dimensional’s goal is to provide investors with research-led investment solutions to the challenges they face. The past couple of years have reminded people how painful an inflation shock can be. This innovative strategy overcomes many of the compromises inflation sensitive investors can have to make.”
John Romiza, Co-CEO, Dimensional Fund Advisors Ltd., said: “This is a great example of Dimensional’s client-focused approach to product development. Our clients asked for inflation protection, short duration and exposure to the credit premium, and we have delivered those components with this fund.”
About Dimensional Fund Advisors
Dimensional is a leading global investment firm that has been translating academic research into practical investment solutions since 1981. Guided by a strong belief in markets, we help investors pursue higher expected returns through a systematic investment process that integrates research insights with advanced portfolio design, management, and trading while balancing tradeoffs that can impact returns. Dimensional is headquartered in Austin, Texas, and has 15 global offices across North America, Europe, and Asia. As of December 31, 2023, Dimensional manages $677 billion for investors worldwide. For more information, please visit dimensional.com.
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The Dimensional Sterling Short Duration Real Return Fund’s performance may be compared to the fund’s performance benchmark, the Bloomberg UK Government Inflation-Linked 1-5 Year Index. The Dimensional Sterling Short Duration Real Return Fund currently uses the UK RPI (Retail Price Index) All Items NSA (Non-Seasonally Adjusted) as a measure of inflation.
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