First State Investments has finalised the income yield for the re-launch of its corporate bond fund ...
First State Investments has finalised the income yield for the re-launch of its corporate bond fund at 5.66%.
The restructured fund, as first reported in Investment Week in November last year, is managed by Malcolm White and will achieve this yield through investment almost entirely in BBB and above investment grade debt.
While the fund will always have a minimum of 80% invested in sterling-denominated credits, there is the flexibility for White to also invest in the global corporate debt market.
Richard Adams, director of UK retail at First State, said in an asset class where small amounts of outperformance make a big difference, incremental gains in global debt are worth the effort.
The portfolio will be 10% invested in AAA bonds, 20% AA, 35% A and 22% in BBB credit.
Adams said that while this may appear a move down the quality spectrum, it is just a reflection that the AAA sector is overweighted by gilt proxies and foreign government debt, which he said distorts the market place.
To reduce volatility in the portfolio, Adams said that the fund holds more volatile sectors, White will be pro-active in reducing duration.
Adams said: 'Before the changes the fund was yielding at the low end of 5%, as a result we looked across the whole market to see where we could add value, but not by putting money into junk bonds.'
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