Axiom Short Duration Bond Fund

Promotional Communication: Before subscribing, read the fund’s key information document (KID): it sets out, among other things, its strategy, risk indicator, performance scenarios and costs. These scenarios are simulations, not guaranteed forecasts.

Also read the prospectus for details of the investment policy and risks. It provides further information on the investment policy, risks and operating arrangements.

Investing in a short-duration bond fund therefore requires an assessment of all the product’s risks, beyond its interest-rate sensitivity alone. Past performance is not indicative of future performance and invested capital is not guaranteed.

A short-duration fund is a bond fund with less exposure to interest-rate movements than a longer-duration fund. Its portfolio often holds debt securities with near maturities, or is managed to reduce this exposure.

Duration measures the weighted average timing of a bond’s cash flows. It helps assess sensitivity to interest-rate changes, but cannot by itself predict how the bond’s price will move.

All else being equal, shorter duration generally reduces the effect of a rate change on the value of bonds held. The fund’s net asset value may nonetheless change because of other factors, notably credit risk.

Depending on its objective, such a fund may hold corporate bonds, government bonds, financial-sector securities or other debt instruments. Spreading holdings among securities or issuers may diversify the portfolio, but does not eliminate market risks or the risk of capital loss.

Duration is not exactly the same as maturity. Maturity is the date on which a bond is scheduled to be repaid, whereas duration also reflects coupon payments and the timing of those cash flows.

A short-duration bond fund generally aims for lower interest-rate sensitivity, notably by favoring shorter-maturity bonds or actively adjusting the duration of its bond portfolio.

The asset manager selects securities with regard to their remaining maturity, issuers’ creditworthiness, yields, economic conditions and market circumstances, among other factors. It may buy and sell securities to adjust the portfolio’s exposure to interest rates and credit risk.

Depending on its strategy, a short-term credit fund may invest in different types of issuer:

• Bonds issued by governments, public authorities or public bodies;
• Corporate bonds;
• Debt securities issued by financial institutions;
• Higher-credit-quality bonds, known as investment grade;
• Securities with greater credit risk, if the mandate permits them.

Short duration does not make a bond fund risk-free. Its value may change with interest rates, issuers’ financial positions, possible defaults, fees and the asset manager’s decisions.

A short-duration fund does not guarantee invested capital. Its response to rate movements may be smaller than that of a long-duration fund, but several sources of risk remain.

Interest-rate risk is the effect of changes in interest rates on bond prices. Lower duration may lessen this effect without eliminating it.

Credit risk includes a fall in a security’s value when its issuer is considered less able to repay, even if it continues to make due interest and principal payments. Deteriorating conditions at a company, state or financial institution may reduce the value of its debt.

Default risk arises when an issuer can no longer pay the expected interest or repay the principal due. It varies in particular with the credit quality of the bonds held by the fund.

Liquidity risk can arise when certain instruments become difficult to trade quickly or can only be sold at a less favorable price, particularly in stressed markets.

Currency risk concerns funds holding foreign-currency bonds without full hedging. Currency fluctuations may then affect the fund’s net asset value.

Finally, the risk of capital loss must be considered: unit prices can rise or fall, and investors may not recover their full investment.

Usually, rising rates lower the value of existing fixed-rate bonds. Conversely, falling rates may support their prices. This mechanism nevertheless depends on the securities’ characteristics and market conditions.

With other risks held comparable, a shorter-duration fund is generally less sensitive to rate changes than a longer-duration fund. This says nothing about overall performance or future net asset value: issuers’ credit quality, risk premiums, liquidity and fees also matter.

This lower sensitivity cannot predict the fund’s future performance. Its value also depends on factors including:

• Issuers’ credit quality;
• Changes in corporate-bond risk premiums;
• Income generated by portfolio securities, also known as carry;
• Fees charged to the fund;
• Decisions made by the asset manager;
• Overall bond-market liquidity.

A short-duration fund may therefore be less sensitive to rates while remaining exposed to the market and credit risks of its bond holdings.

Before investing in a short-duration fund, check whether its operation fits your objectives, intended holding period and ability to accept a decline in value.

The investment strategy deserves particular attention. It indicates whether the fund favors corporate credit, sovereign bonds, financial-sector securities or other bond-market segments.

Average duration, or interest-rate sensitivity, is another indicator to consider. It describes the portfolio’s potential exposure to rate changes without predicting its future value.

The securities’ credit quality should also be considered. A fund invested mainly in highly rated bonds does not necessarily have the same profile as one exposed to high-yield bonds or weaker issuers.

The main points to examine include:

• The investment strategy and target bond markets;
• Portfolio duration or interest-rate sensitivity;
• Types of issuers and sector diversification;
• Credit quality of selected bonds;
• Any exposure to foreign currencies;
• The amount and structure of fees;
• The recommended holding period;
• Risks detailed in the regulatory documents.