Old Mutual Asset Managers is to launch a corporate bond fund with a minimum 80% in investment grade ...
Old Mutual Asset Managers is to launch a corporate bond fund with a minimum 80% in investment grade instruments, writes Robert Stock.
The group intends the portfolio to be lower risk than high yielding funds.
An application has been lodged with the FSA, and Old Mutual hopes to be able to open a three-week fixed offer period on the unit trust from the middle of June with the first pricing towards the start of July.
There will be a minimum investment of £1,000 and Old Mutual said initial fees and annual management fees will be lower than on the group's equity funds to reflect the nature of the investment. It will be marketed mainly though intermediary channels and will pay initial commission and annual renewal.
The fund, which will be available with Pep and Isa wrappers, is to be run by Richard Woolnough, fixed interest manager at Old Mutual. Further details are to be released in the coming weeks.
Woolnough, who manages Old Mutual's sterling fixed interest funds and the emerging market debt fund, said: "This is constructed to provide a high quality portfolio which does not have the same kind of risk characteristics as a high yielding bond fund. Some 80% of assets have to be BBB plus or above. Most other funds don't have that type of restriction."
A further restriction on the fund, designed to reduce risk, is the maximum levels set for the proportion of assets that can be held in debt issued by any one company. This has the aim of ensuring there are at least 20 holdings in the portfolio.
The maximum weighting in a signal issue will depend upon its rating. This is being capped at 5% for an AAA issue and 4.5% for an AA bond. Woolnough said: "The higher the risk that the issuer will not be able to honour the debt the smaller the proportion we are allowed to hold.
"It's a way of managing the risk and maintaining diversity by preventing the portfolio from being too highly concentrated."
In order to meet tax requirements for Pep status at least 51% of the fund must be invested in fixed interest corporate bonds issued by UK companies with a maturity of more than five years at the point of purchase.
Up to 20% of the fund can be held in non-sterling-denominated bonds, which Woolnough said gives the option of adding extra returns if there is a negative view of sterling.
Woolnough said that because the bonds invested in were of investment grade, selection would be top-down, based on macro-economic criteria but typically the holdings would be issued by banks such as Halifax and Barclays, or companies with significant market positions such as Glaxo Wellcome. Woolnough said that the fund would not be looking to take immediate positions in bonds issued by the telecommunications giants seeking to finance their purchase of next generation mobile telephone licences from the Government.
Woolnough joined Old Mutual Asset Managers in February 1995 to assist Bob Attridge, head of fixed interest, and to concentrate mainly on the UK gilt and non-linked portfolios, but built up his knowledge of the gilt and fixed interest markets, from positions with Lloyds Bank International, Prudential Bache, Assicurazioni Generali and SG Warburg.
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