End of year review 2024
Dynamic Duration Fund
This is a marketing communication for professional investors only. Capital at risk.
Past performance does not predict future returns.
As we close out the year, the Atlantic House Dynamic Duration Fund continues to deliver on its promise of systematic, signal-based bond investing. Since launch, the fund has achieved a return of +2.6%, with assets under management now exceeding £43m as of 31/12/24.
Its dynamic approach to duration management has successfully navigated challenging inflationary conditions, providing valuable diversification for multi-asset portfolios. The fund has largely kept pace with its benchmark—50/50 UK Gilts and US Treasuries of 7–10 years—and outperformed the IA UK Gilts sector year-to-date.
We remain confident in our strategy’s ability to deliver outperformance over market cycles. By leveraging a systematic, data-driven approach, the fund aims to provide a consistent and predictable path to long-term success, offering a differentiated bond-investing solution across various inflationary environments.
This end-of-year review will cover:
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A reminder of the fund’s signals and how it provides exposure to rates and inflation
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How the fund’s positioning evolved over 2024 and performance commentary
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The outlook for 2025
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An evolution to the inflation trend signal
For further details, please see our 1-year anniversary report from August here.
The Dynamic Duration Fund Overview
The fund is designed to outperform traditional bond funds across a range of inflationary environments by utilising a straightforward, systematic, signal-based investment approach. It offers exposure to UK and US interest rate and inflation markets through just four underlying assets:
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Interest Rates: UK and US 10-year interest rate swaps
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Inflation: UK and US 10-year zero-coupon inflation swaps
A key feature of the strategy is its use of inflation swaps, which provide pure inflation exposure without the interest rate risk typically associated with inflation-linked bonds. This allows the fund to generate positive returns during periods of rising inflation and increasing interest rates. Moreover, the generally negative correlation between bond prices and inflation expectations means the inflation exposure often gains when the bond exposure does not, and vice versa. This diversification helps stabilise returns and may enhance performance through rebalancing opportunities.
Importantly, the fund is not solely focused on inflationary spikes. Its adaptive design allows it to shift exposure based on market conditions. The fund can allocate up to 200% to bonds and 0% to inflation swaps or, conversely, position with 0% in bonds and 100% in inflation swaps. This flexibility enhances its potential to outperform during periods of both falling inflation and declining interest rates by double-weighting bond exposure compared to a traditional long-only bond fund or ETF.
Signal changes, Swap Rates, Exposure and Performance Commentary
The chart below shows how the overall signals evolved for both the UK and US throughout 2024:
Past performance does not predict future returns.
Source: Bloomberg, 31/01/03 – 29/11/24.
At the start of the year, a US signal change in December 2023 reduced rates exposure and increased inflation exposure. This remained broadly neutral for much of 2024, with a 3/6 signal score (50% allocation) for both the UK and US. In October, the US signal briefly shifted to higher rates exposure before reversing in November.
In the UK, the first notable signal change occurred in November, reducing bond exposure in favour of inflation. Based on current inflation data relative to the fund’s signal thresholds, the real yield indicator could shift to increase bond exposure at the December data observation. As a result, we expect the fund to enter 2025 with either a similar positioning to 2024 or lower bond exposure and increased inflation exposure.
The tables below show how swap rates changed during 2024, the fund’s exposure to rates and inflation each month, and the fund’s monthly performance:
Swap Rate at Month End
Exposure to Rates and Inflation (Fund Level) at Month End
Fund Performance
Past performance does not predict future returns.
Sources: Bloomberg, 29/12/23 - 11/12/24, Atlantic House, 29/12/23 - 29/11/24
The fund faced headwinds in early 2024 as investors reassessed the number of potential rate cuts. Rising yields in the UK and US through April created a challenging environment, but the fund’s inflation exposure provided an effective offset.
Over the summer, the fund benefitted from declining yields as the narrative shifted toward heightened recession risks. In October, the US signal increased rate exposure, anticipating a downward inflation trend. However, rising yields following political developments in the US proved unfavourable. By year-end, the fund shifted towards greater inflation exposure, reflecting its dynamic, data-driven design for adapting to market conditions.
Outlook for 2025
The fund’s positioning remains determined solely by our systematic, rules-based approach. While we do not make outright predictions, we can assess how current data aligns with signal thresholds to anticipate future adjustments. The latest signal readings are shown below for the UK and US (as of 29/11/24):
Source: Atlantic House as at 29/11/24
In the UK, the real yield indicator is close to triggering an increase in bond exposure. However, any rise in inflation expectations could shift the signal back towards inflation exposure. Similarly, core inflation remains above 3%, suggesting that meaningful rate exposure adjustments would require a clear downward move in inflation.
For the US, signals are similarly balanced. While trends in headline inflation have largely flatlined, they provide opportunities for increased inflation exposure should inflation data surprise to the upside.
In summary, the thresholds to increase bond exposure are close, but persistent inflation risks could favour a return to inflation positioning, demonstrating the fund’s ability to adapt dynamically to economic shifts.
Duration Sensitivities and Scenarios
With the fund’s signals currently at 3/6 for the US, and 3/6 for the UK, the fund should be well positioned to benefit from a resurgence in inflation expectations. Its duration exposures to UK and US rates and inflation are as follows:
Source: Atlantic House as at 29/11/24
Based on the sensitivities above, the following scenarios show how the fund should fare versus a 10-year passive bond allocation split 50/50 between the UK and US:
Source: Atlantic House as at 31/12/2024
An Evolution to the Trend Signal
We have refined the inflation trend signal to reduce the risk of "whipsaws", where short-term noise triggers false signals. From 2025, the signal will incorporate a 3-month average of the inflation trend.
New Definition:
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Signal 1 (Inflation Trend):
x = (3-month average of) change over 6 months in headline inflation (year-on-year).-
If x < -1%, signal = 2
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If x > 1%, signal = 0
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If x is between -1% and +1%, signal = 1
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We have run a full analysis of the change versus the original backtest and find that this refinement reduces risk and transaction costs without sacrificing performance. While it may slightly delay responses to emerging trends, it lowers the impact of short-term noise and reduces the risk of false positives. With inflation trends in the UK and US largely flatlined, this adjustment is unlikely to have a material impact until a meaningful inflation trend gathers momentum.
Conclusion
The Atlantic House Dynamic Duration Fund has delivered as expected in a challenging inflationary environment, offering strong diversification benefits and adaptive positioning. Our systematic strategy remains well-positioned to deliver outperformance relative to traditional government bond funds across inflationary cycles, achieving long-term success through steady, incremental gains.
The price of shares and income from them can go down as well as up and past performance is not a guide to future performance. Investors may not get back the full amount originally invested. The level and basis of tax is subject to change and will depend on individual circumstances. There is no guarantee that the Fund will achieve its objective.
A comprehensive list of risk factors is detailed in the Risk Factors Section of the Prospectus and the Supplement of the Fund and in the relevant key investor information document (KIID). A copy of the English version of the Supplement, the Prospectus, and any other offering document and the KIID can be viewed at www.atlantichousegroup.com and www.geminicapital.ie. A summary of investor rights associated with an investment in the Fund is available in English at www.gemincapital.ie.
The Fund is entitled to use derivative instruments for investment purposes and for efficient portfolio management and/ or to protect against exchange risks. Derivatives may not achieve their intended purpose. Their prices may move up or down significantly over relatively short periods of time which may result in losses greater than the amount paid. This could adversely impact the value of the Fund. The Fund may enter into various financial contracts (derivatives) with another party. Where the Fund uses futures or forward foreign currency contracts (derivatives), it may become exposed to certain investment risks including leverage, market, mismatching of exposure and/or counterparty risk, liquidity, interest rate, credit and management risks and the risk of improper valuation. Any movement in the price of these investments can have a significant impact on the value of the Fund and the Fund could lose more than the amount invested.
The Fund invests in government bonds. All bonds will be investment grade (i.e. at or above S&P rating BBB- or deemed equivalent). If any of the bonds the Fund owns suffer credit events the performance of the Fund could be adversely affected
In certain market conditions some assets in the Fund may become less liquid than at other times so selling at their true value and in a timely manner could become more difficult.
Other risks the Fund is exposed to include but are not limited to are possible changes in interest rates, changing expectations of future market volatility. Future legal or regulatory change could have a significant effect on the Fund.
This is a marketing communication issued by Atlantic House Investments Limited and does not constitute or form part of any offer or invitation to buy or sell shares. It should be read in conjunction with the Fund’s Prospectus, key investor information document (“KIID”) or offering memorandum. Atlantic House Investments Limited is authorised and regulated by the Financial Conduct Authority FRN 931264. Atlantic House Investments Limited is a Private Limited Company registered in England and Wales, registered number 11962808. Registered Office: One Eleven Edmund Street, Birmingham. B3 2HJ.
The contents of this video are based upon sources of information believed to be reliable. Atlantic House Investments Limited has taken reasonable care to ensure the information stated is accurate. However, Atlantic House Investments Limited make no representation, guarantee or warranty that it is wholly accurate and complete.
This material may not be disclosed or referred to any third party or distributed, reproduced or used for any other purposes without the prior written consent of Atlantic House, any data provider and any other third party whose data is included herein and must be returned on request to Atlantic House and any copies thereof in whatever form destroyed.
A decision may be taken at any time to terminate the arrangements for the marketing of the Fund in any jurisdiction in which it is currently being marketed. Shareholders in affected EEA Member State will be notified of any decision to terminate marketing arrangements in advance and will be provided the opportunity to redeem their shareholding in the Company free of any charges or deductions for at least 30 working days from the date of such notification.
The Atlantic House Dynamic Duration Fund is a sub-fund of GemCap Investment Funds (Ireland) plc, an umbrella type open-ended investment company with variable capital, incorporated on 1 June 2010 with limited liability under the laws of Ireland with segregated liability between sub-funds.
GemCap Investment Funds (Ireland) plc is authorised in Ireland by the Central Bank of Ireland pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (S.I. No. 352 of 2011) (the “UCITS Regulations”), as amended.
Gemini Capital Management (Ireland) Limited, trading as GemCap, is a limited liability company registered under the registered number 579677 under Irish law pursuant to the Companies Act 2014 which is regulated by the Central Bank of Ireland. Its principal office is at Suites 22-26 Morrison Chambers, 32 Nassau Street, Dublin 2, D02 X598 and its registered office is at 7th Floor, Block A, One Park Place, Upper Hatch Street, Dublin 2, D02E762. GemCap acts as both management company and global distributor to GemCap Investment Funds (Ireland) plc
2023 Fund Reviews
Reminder of the Signals and Potential Positioning
The fund utilises three signals which use interest rate and inflation data to determine its allocation between rates and inflation. These signals are recalibrated monthly through the fund’s systematic framework in response to the latest data from the UK and US.
Source: Atlantic House as at 29/11/24
The signals determine the appropriate positioning to rates and inflation across the UK and US, as shown above. The fund’s positioning is then implemented with UK and US interest rate swaps and inflation swaps at the 10-year point.