Aberdeen Sterling Bond unit trust is now available via an Isa or Pep and has reduced the minimum inv...
Aberdeen Sterling Bond unit trust is now available via an Isa or Pep and has reduced the minimum investment to encourage retail investors..
Prior to the end of June, the minimum lump sum investment into the fund was £10,000, breaching the £7,000 Isa limit. It is now £500 with a £50 per month regular savings option also being made available.
The decision to change the investment requirements on the fund was a result of Autif's reorganisation of its bond sectors in late April. Until then Sterling Bond appeared in the UK General Bonds sector along with Aberdeen Fixed Interest.
Scott Arnott, head of product development at Aberdeen, said: "As the two funds were in the same sector they were in competition with each other. So we decided that Sterling Bond should be a pseudo-institutional fund. The sector changes mean the two funds now appear in different sectors."
The £105.7m Sterling Bond fund is listed in the UK corporate bond sector while the £1.1bn Fixed Interest fund is in the UK Other Bond sector.
Fixed Interest has some exposure to high yielding debt and is more likely to invest in convertibles, while Sterling Bond, managed by Phil Roantree, only invests in investment grade debt and on occasion, convertibles.
The inverted yield curve with 30-year gilts yielding 4.5% leaves Roantree cautious about the long end of the market and he is instead focusing on debt with five to 10-year maturities.
He said: "If 30-year gilt yields rose by 100 basis points, I think you would probably lose 14% of your capital. As a result five to 10-year dated gilts yielding 5.5% are attractive because you are getting sufficient income to offset a fall in capital from a narrowing of spreads."
The average credit rating in the portfolio is single A, adding 150 basis points to yields offered by gilts producing a portfolio yield of 7%. Given the Bank of England's inflation target of 2.5% the fund offers a real yield of 4.5%, according to Roantree.
The benchmark for the fund is the UK gilt index, which he admits can be seen as strange since the portfolio is not invested in government debt. However, he said investors should see that the higher level of risk they are taking is being rewarded by the fund outperforming gilts.
Although the fund's investment remit allows Roantree to invest in convertibles, he will only do so if they are trading at levels similar to bonds. As a consequence they will be bought when there is little downside risk. Recently Roantree bought into Railtrack convertibles with a 2009 date, which were yielding slightly more than the company's 10-year debt.
A rally in Railtrack's share price allowed Roantree to sell at significantly more than if he held the bond. However, he added convertibles are only a small part of the total portfolio. As at the end of May, convertibles only made up 1.9% of the total portfolio. Some 89.8% of the portfolio was exposed to UK investment grade bonds followed by 7.3% in preference shares and 1.9% in gilts.
Over the three years to 5 July the frAA fund is ranked three out of 53 in the UK Corporate Bond sector. During the period it rose by 27.4% compared to an average rise of 17.1%.
For the year to 5 July the fund's performance has been less striking. During the 12-month period it is ranked 44 out of 72, again on an offer to bid basis. The fund fell by 2.8% compared to the average fall in the sector of 2.1%.
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