luxembourg-domiciled euro class defined return fund CARRIES a diversified RAnge of securities, according to manager Jana Benesova-Tuma
CrÃ©dit Suisse is offering a Luxembourg-domiciled euro class for its fixed-interest absolute return fund.
The Defined Return fund aims to return six-month European Libor +2.5%, through a diversified mix of securities ranging from cash and Treasuries to high yield, emerging market bonds and convertibles.
Rather than pursue a traditional bell-curve asset spread, focusing mostly on securities that match the target volatility of the whole fund, lead manager Jana Benesova-Tuma prefers a bar-bell approach, with heavy emphasis on both high-risk and low risk assets, with little in between. This explains the fund's tendency to hold large amounts of cash.
'Unlike many people, we consider cash an active asset class,' said Ahmed Talhaoui, who is in charge of the risk management of the fund. Cash provides an offsetting position to the racier parts of the portfolio as well as allowing the management team to make opportunistic trades.
To maintain diversification from broad economic movements, only half the fund is in assets correlated to interest rate movements and the average rating for the fund is kept at investment grade.
Talhaoui oversees the risk management of the portfolio. He maintains stop-loss positions on every asset, and profit-taking limits on the upside to ensure that excess risk is not being taken.
Simon Boote, managing director of global institutional business, reiterated: 'Ultimately, this is a low-risk product.'
The move into a new share class to promote the fixed-interest vehicle is not a marketing-led development, said Talhaoui. Although investor demand for low-risk alternatives to equities is high, the company intends for the product to continue drawing interest even when equity markets recover.
'The timing is good,' he admitted. 'But the aim is for this to become a core product of the company.' This is the rationale behind the relatively modest target returns to create a sustainable, long-term product.
Benesova-Tuma said: 'Some have said our target return is too low but I do not think so. After all, Libor varies, so the target return could go up a lot. And it would be irresponsible to promise 8% a year. Now we have a clear target, clear risks and a clear Sharpe ratio to aim for.'
The fund was first launched with a single dollar-based share class in 2000 on the back of demand from a single insurance client who was looking for a 'cash plus' investment and now has a strong three-year track record, given how kind the bond markets have been.
However, Talhaoui said the Defined Return fund did not get its returns solely from following the market and having long-term bond holdings but through an active asset-allocation strategy.
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