Ardea’s Real Outcome Fund receives ‘Recommended’ rating from Lonsec

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Fixed income specialist Ardea Investment Management has received a first time ‘Recommended’ rating for its Real Outcome Fund from Lonsec, based on the deep experience of the investment team, its differentiated ‘relative value’ investment approach (which is not reliant on introducing credit or duration risk like many fixed income peers) and strong historic performance.

Ardea’s Real Outcome Fund is a defensive fixed income fund that targets low volatility returns exceeding cash rates and inflation. The Fund prioritises capital preservation by investing in liquid and high quality government bonds, while excluding credit investments, which can prove volatile and illiquid in adverse market environments.

Unlike conventional fixed income funds, which can suffer from poor returns when interest rates are low or incur capital losses if rates rise, the Fund adopts Ardea’s differentiated relative value investment process to access a broader range of fixed income return sources that seek to deliver reliable risk-adjusted returns, independent of the direction of interest rates or broader market fluctuations.

The Fund specifically targets low volatility returns by using risk management strategies aimed at removing unwanted market risk and are also designed to profit during periods of market stress.

An added benefit of the Fund is that it explicitly targets a return exceeding Australian inflation (measured by CPI), which should protect the long term purchasing power of investors’ capital.

The Fund now has a 6-year track record, outperforming its target by delivering a return of 3.50% p.a. (net of fees) since inception*. Notably, performance has remained positive throughout this year’s market volatility.

In its rating report, Lonsec noted “The Fund is differentiated by its highly risk aware relative value investment approach”, and also notes the “diversity of knowledge and experience” of the investment team to execute the Fund’s strategy, with the respective portfolio managers having an average of +20 years global fixed income experience.

Ardea principal and co-founder Ben Alexander said the quality of the investment team and their focus on “relative value trades with reliable risk-adjusted returns” has been key to the Fund’s consistent performance.

“The relative value investment approach targets low volatility returns independent of whether rates go up or down, and independent of what equity and credit markets do. This makes the Fund a more reliable defensive fixed income anchor to diversify portfolio risk away from conventional equity, property and credit investments, which is especially valuable in current conditions where conventional return sources are facing more risk for less return,” Mr Alexander said.

Investors are also using the Fund as an alternative income source as it provides daily liquidity and has consistently delivered higher returns than bank deposits, with less credit risk than yield seeking investments such as bank hybrids and credit securities, and less volatility than dividend paying stocks.

The Fund’s Lonsec rating follows the reaffirmation of the ‘Recommended’ rating from Zenith Investment Partners in May 2018, and supports Ardea’s efforts to make the Fund available to a broad wholesale and retail investor base.

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