USD Hedged Global Inflation-Linked Bond Sharpe Ratio too high?

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actuarialcat
Posts: 1
Joined: Tue May 10, 2022 7:04 am

USD Hedged Global Inflation-Linked Bond Sharpe Ratio too high?

Post by actuarialcat »

Hi all,

While doing mean-variance analysis for my portfolio, I notice an abnormality regarding two similar inflation-linked bonds. Both track the same index but XG7U.L have much higher Sharpe ratio. It is even so high that it distort my asset allocation. I am not sure if it is really that good, or I am missing something.

IGIL.L - iShares Global Inflation Linked Govt Bond UCITS ETF
USD fund currency, Duration 10.84

XG7U.L - Xtrackers II Global Inflation-Linked Bond UCITS ETF 2C - USD Hedged
EUR fund currency, USD hedged, Duration 11.56

3-year rolling Sharpe ratio comparison (IGIL.L vs XG7U.L):
https://pasteboard.co/vz6XmmxvEcIW.png

3-year rolling Sharpe ratio comparison (XG7U.L vs MSCI ACWI benchmark):
https://pasteboard.co/jq6u2V3Bg8If.png


Compare to a nominal bond index (LUSC.L), Sharpe ratio XG7U.L is so high that it is suggesting not to hold any nominal bonds. And XG7U.L is even less correlated with global Equities, giving even more diversification.

LUSC.L - SPDR Bloomberg 10+ Year US Corporate Bond UCITS ETF
Duration 13.62

3-year rolling Sharpe ratio comparison (LUSC.L vs XG7U.L):
https://pasteboard.co/BL9NeyMSdJbw.png


Did I miss something important, or should I trust my data?
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