By Jane Wallace Baring Asset Management will roll out a retail UK corporate bond fund on 21 February...
By Jane Wallace
Baring Asset Management will roll out a retail UK corporate bond fund on 21 February and plans to launch an institutional US high-yield debt fund after the end of the tax year.
Baring Sterling Corporate Bond Trust will be managed by Jane Smettem, currently a member of Barings' bond team headed by Rory McLeod. She will be assisted by recently hired head of credit Marino Valensise and his team.
The offer period lasts for two weeks, during which there is a 1% discount off the initial charge of 5%. Commission for IFAs is 3% initial, there is no trail commission. The annual management fee is 1%, charged to capital.
The fund will be mainly invested in investment grade bonds and will offer a yield of 6%. Its investment objective is to beat the performance of the benchmark FTSE All Stocks 5-15 Years index by 1% per year.
Rob Page, global head of communications at Barings, said: "This fund aims to provide a high and stable level of income to investors. We are swimming against the tide as there is a plethora of high yield bond funds offering around 9% being launched or already in the market.
"We believe there is a role for these funds as long as investors understand the risk involved, which can be significant as the default rate of sub-investment grade bonds in the US has recently gone up. We have chosen a more conservative route."
Even though the fund aims to be conservative, it can carry up to 25% in high yield or junk bonds and up to 20% in overseas paper. It can also invest in unrated bonds, provided that the fund manager believes them to be of investment grade quality.
By credit rating, the model portfolio is 24% invested in AAA-rated bonds, 19% in AA-rated bonds, 29% in A-rated, 18% in BBB, 4% in BB and 6% in B.
This means that 10% of the fund is invested in sub-investment grade (below BBB-rated) debt.
Examples of stocks in the model portfolio, which has some 40 holdings, include debt issued by Chester Asset Receivables Trust (AAA-rated), Asda (AA-rated), Vodafone (A-rated), and Hammerson (BBB-rated).
In terms of asset allocation, the model portfolio is quite diversified. The largest sector holdings are 18% in financials, 11% in utilities, 10% in media, 8% in transport, 7% in retail, 6% in industrials and 5% in telecoms.
In terms of debt other than corporate bonds, the portfolio is invested 13% in gilts, 8% in sovereign and supranational debt, and 3% in securitised paper.
The planned offshore US fund will complete the suite of corporate bond funds which Barings intends to create and for which Valensise was hired to mastermind the credit analysis side. As well as the new funds, the suite comprises Baring Euro-bond, an offshore fund launched last autumn.
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