RPT-Fitch Assigns Lombard Odier's Absolute Return Bond Fund 'Strong' Fund Quality Rating

Tue Apr 8, 2014 4:37am EDT

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April 8 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has assigned LO Funds - Absolute Return Bond Fund (ARBF) a 'Strong' Fund Quality Rating. The fund is managed by Lombard Odier Investment Managers (LOIM).

KEY RATING DRIVERS

Fund Profile

ARBF is a sub-fund of LO Funds, Lombard Odier's Luxembourg SICAV which is UCITS IV compliant. Launched in July 2010, ARBF is a fixed income absolute return fund with EUR282m of assets as of February 2014. The fund aims to generate returns of cash plus 4% over a cycle with a target volatility of 5%. The fund can invest both long and short, across developed and emerging markets, predominantly in cash bonds and derivatives.

Investment Process

The portfolio consists of a macro book (run by the two co-lead PMs) to reflect the team's top-down views, combined with five sub-portfolios that are run independently by five individual PMs. Each of the five PMs has a specialised area of investment.

The fund's flexibility to dynamically allocate risk between alpha drivers is a key differentiator to peers. Risk budgets are allocated to each book, in terms of volatility limits and stop-loss limits (rolling over a range of time periods), and are monitored by LOIM's independent risk team to limit fund drawdown.

Resources

The global fixed income and currencies team consists of seven members. The lead PM, Gregor Macintosh, has run the fund since inception and has 18 years' investment experience. The co-lead PM, Grant Peterkin, joined LOIM in March 2013, with 15 years' experience. The team have on average 13 years' investment experience. The fund is supported by LOIM's infrastructure, notably three independent investment risk managers specifically involved in this fund and LOIM's central functions, including IT and middle office.

Track Record

The fund (EUR IA share class) has a Lipper Leader Score for consistent return and capital preservation score of '4' and '5', respectively, over three years to end-February 2014. Since inception, the fund has returned 8.5% compared with the Lipper Global Absolute Return EUR Low category of 3.8%. The performance of the fund since inception has been predominately driven by the macro risk book.

Asset Manager

LOIM is the asset management division of the Swiss private bank Lombard Odier SCA (AA-/Stable/F1+). The company managed USD48bn as at December 2013, including USD18bn in fixed-income products. The infrastructure is well suited to the investment process.

RATING SENSITIVITIES

The rating may be sensitive to material changes in the investment or operational processes, or resources dedicated to the fund. A material adverse deviation from Fitch's guidelines for any key rating driver could result in a downgrade. For example, this may be manifested in a structural deterioration in the fund's performance as measured by drawdown, excessive volatility or underperformance relative to objective and peers. Fitch considers there is currently limited potential for a positive rating action due to the fund's already high rating. Fitch's Fund Quality Ratings combine Fitch's experience in qualitative fund analysis with rankings and performance data from Lipper, a Thomson Reuters company. Fitch's Fund Quality Ratings offer an independent, forward-looking assessment of a fund's key performance and risk attributes and consistency of longer-term returns, relative to peer group or benchmarks. The ratings focus on the fund manager's investment process, key fund performance drivers, risk management, and the quality of the fund's operational infrastructure.

For more information, please see www.fundmanagement.fitchratings.com To receive forthcoming Fund Quality Rating research, opt in here

Link to Fitch Ratings' Report: LO Funds - Absolute Return Bond Fund

here

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