Objective
The fund aims to provide a positive total return (combined income and capital growth) that matches or is greater than European inflation, as measured by Eurostat Eurozone Harmonised Index of Consumer Prices, over any three-year period.
Investment policy and strategy
Core investment: At least 50% of the fund is invested in inflation-linked investment grade corporate bonds.The fund may invest directly or indirectly by creating ‘synthetic’ bonds through the combination of inflation-linked government bonds and derivatives.
The fund may also use derivatives to reduce risk and costs and to manage the impact of changes in currency exchange rates on the fund’s investments.
Strategy in brief: The fund holds a range of bonds whose returns behave in a similar
way to inflation. However, the investment manager may seek alternative sources of
returns where it is felt that this will help achieve the fund’s objective. The investment
approach combines the assessment of macroeconomic factors with in-depth analysis
of the creditworthiness of individual bond issues.
The fund manager will typically
invest in European bonds but may also invest in bonds issued outside of the region and
in other currencies, based on where value is identified. The fund manager will normally
hold at least 90% of the fund in Euros.
Other investment: The fund may also invest in cash and deposits, preferred shares,
other debt instruments, warrants and other funds.
Glossary terms
Bonds: Loans to governments and companies that pay interest.
Derivatives: Financial contracts whose value is derived from other assets.
Inflation-linked bonds: Bonds where both the value and the interest payments are adjusted in line with inflation until they are fully repaid.
Preferred shares: Shares which entitles the holder to a fixed dividend, whose payment takes priority over that of ordinary share dividends.
Warrants: Financial contracts that allow the fund manager to buy stocks for a fixed price until a certain date.
Risks associated with the fund
The value and income from the fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested.
Investments in bonds are affected by interest rates, inflation and credit ratings. It is possible that bond issuers will not pay interest or return the capital. All of these events can reduce the value of bonds held by the fund.
The fund may use derivatives to profit from an expected rise or fall in the value of an asset. Should the asset's value vary in an unexpected way, the fund may lose as much as or more than the amount invested.
The fund is exposed to different currencies. Derivatives are used to minimise, but may not always eliminate, the impact of movements in currency exchange rates.
For accumulation shares, if inflation is low or zero, there is a risk that the fund’s expenses exceed the income it earns. If this happens, any shortfall will be taken from the fund’s capital and the fund's capital growth will be reduced.
This fund is subject to effective yield accounting. As a result, part of its capital inflation protection will be distributed to holders of income shares. Income shareholders will therefore, in effect, be receiving part of the capital protection as income.
The hedging process seeks to minimise, but cannot eliminate, the effect of movements in exchange rates on the performance of the hedged share class. Hedging also limits the ability to gain from favourable movements in exchange rates.
In exceptional circumstances where assets cannot be fairly valued, or have to be sold at a large discount to raise cash, we may temporarily suspend the fund in the best interest of all investors.
The fund could lose money if a counterparty with which it does business becomes unwilling or unable to repay money owed to the fund.
Further details of the risks that apply to the fund can be found in the fund's Prospectus.
Other information
The Fund allows for the extensive use of derivatives. The fund may invest more than 35% in securities issued by any one or more of the governments listed in the fund prospectus. Such exposure may be combined with the use of derivatives in pursuit of the fund objective. It is currently envisaged that the fund’s exposure to such securities may exceed 35% in the German government, although this may vary subject only to those listed in the prospectus.