They recognised the need to focus on absolute return products. Fellingham insists that in contrast to the straitjacket of long-only management, absolute return mandates offer managers more freedom. For example, the Ignis Gilts fund, which allocates to gilts and cash, has generated a very respectable Information Ratio of 0.
So, the additional freedoms that Fellingham has given his team have clearly elevated the information ratio into another echelon altogether. Fellingham envisages that investors will increasingly focus on these measures of risk-adjusted returns, such as Information and Sharpe ratios, rather than just raw returns. Fellingham argues that Ignis has competitive advantages in fixed income, some equity markets, and alternatives.
ClearCurve — a competitive advantage Ignis chief economist Stuart Thomson recalls that the Bank of England first started applying forward rate analytics to government bond curves. Although the Bank has been a nursery school for many City economists, remarkably few asset managers are actually using forward rates according to Ignis.
The Ignis rates team, including co-manager Paul Shanta, says that the way in which Bloomberg fits forward curves fails to highlight many real opportunities.
Ignis likes to view bond markets through the lens of their proprietary forward rate analytics system, ClearCurve, which acts as a competitive information advantage in many respects and is not available to any other asset managers.
The techniques were developed by Russ Oxley, head of rates, and by co-portfolio manager Adam Purzitsky, who noticed that forward interest rates are far less correlated than spot interest rates.
Ignis argues that managing using forward rates within the same government bond market brings far greater diversification benefits than allocating to an overseas government bond of the same maturity.
The reason is simply that correlations between government bond markets of different countries, at the same maturities, have lately been far higher than those between different maturities within the same market. Using forward rates also creates plenty of trading opportunities. In the space of just one month Ignis frequently observes that different forward rates have moved in opposite directions. There may therefore be times when the year spot rate, which is the average of the individual forward rates up to 10 years, has not moved, but Ignis can make money because they are trading the individual one-year forward rates, some of which have risen and some of which have fallen.
This forward rate framework has been used at Ignis since , and throws up trade ideas that might not be picked up by conventional approaches. ClearCurve decomposes the yield curve into any number of segments, giving greater insight into market pricing, leading to superior portfolio construction, and at times identifying quirks in the curve that become actionable trades.
One example was a brief period when forward rates at a particular point on the curve went negative. Whereas this event was a barely discernible blip on the smooth path of the zero coupon curve, the unusual plunge into negative territory was clearly visible to Ignis, and the manager swiftly profited from the reversal of this anomaly.
ClearCurve also provides very precise exposure breakdowns, all the way down to basis points of risk at each segment of the forward rate curve. This brand has also served Nigeria for several years, religious users of this brand can testify to the solidity and originality of this brand.
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