Group's strategic Bond fund will offer both high yield and investment grade bonds
Threadneedle is to launch a fund offering a mixture of high yield and investment grade bonds, aiming to produce a target yield of around 7%.
The fund, to be called the Threadneedle Strategic Bond fund and managed by Ted Bacon, will launch on 5 November.
Bacon also manages the AAA-rated UK Corporate Bond portfolio and will be assisted by Barrie Whitman, who currently runs the High Yield Bond fund. They will be supported by a team of credit and fixed income strategists.
The product will be a sub-fund of the group's existing Oeic umbrella. It will pay intermediaries up to 3% commission and offers 0.5% renewal. As well as a retail, there will be an institutional share class.
The fund's focus will be on absolute return rather than purely income. According to Threadneedle, Bacon and Whitman will have the flexibility to choose the stocks they think will produce the best total return, rather than picking stocks simply for yield.
Investors will have the option of reinvesting income at no cost or having it paid monthly.
The product will be Isable and will only be marketed through intermediaries.
Threadneedle sales director Guy Beech said: 'Investors in this fund will be able to benefit from the experience of two managers, both of whom have excellent track records.
'Bacon will be responsible for the selection of the investment grade bonds, while Whitman will look after the high yield element.' The task of the managers, he said, would be to react to changes in the economic environment and manage the relative balance between high yield and investment grade bonds accordingly.
'When you look at yield curves over the past few years,' Beech said, 'the optimum return for the minimum risk seems to occur when funds have between 30%-50% in high yield bonds.
'Whitman will actively manage the high yield portion of the fund to keep it on the sweet spot. I think this kind of product will produce returns as good as, if not better than, equities over the foreseeable future. That said, it should still be attractive to income investors.'
Head of global bonds at Threadneedle, Robert Stirling, said the fund would enable investors to take advantage of an arbitrage effect that is normally unavailable to bond investors.
He added: 'Most bond funds invest in either investment grade bonds or high yield bonds. The problem with investing solely in one or the other is that if bonds are either upgraded or downgraded, under the terms of their mandate, fund managers are often forced to sell them.
'For example, if a AAA-rated bond is downgraded to BBB or below, as happened recently with Marconi, our corporate bond manager would have to sell it immediately. The same would apply if the opposite was to happen for a high yield bond fund manager.
'This fund is able to invest across the entire credit range, which allows managers to hold on to bonds and sell them when it's most advantageous.'
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