ian robinson's high income fund will trade in us dollar and euro-denominated debt in future
Isis is looking to extend the investment remit of its High Income fund, managed by Ian Robinson, to enable investment in US dollar and euro-denominated debt.
At present, the fund invests solely in sterling-denominated investment grade bonds and Robinson said the added scope would allow him to widen his universe and get access to potentially higher yields. Currency exposure would be hedged back into sterling.
The change is expected to take place before the end of the first quarter of this year and Robinson said with the differences between US and sterling deposit rates at present, the fund would actually be paid close to 2.25% for hedging the two currencies.
Robinson, who took over the fund from James Foster in September last year, said he will not be changing the safe nature of the fund. He simply wants to maintain its stability by using different opportunities to improve the yield without significantly adding to the volatility.
At present, the fund concentrates on investment grade bonds with under 10 years to maturity, rated A to AAA, so volatility is kept low. While Robinson has not made any wholesale changes to the fund's investment approach, he has made recent changes to its portfolio. He recently picked up a holding in the US consumer financing company Household International after it was announced HSBC was to take it over.
Prior to this announcement, the company was in the midst of a mis-selling scandal and from April 2002 its shares had fallen to a third of their value. However, since the HSBC announcement its share price has jumped and Robinson said the takeover will be beneficial for its shareholders.
He has also taken a position in CAF (Corp Andina De Fomento), a supranational company that invests in South America. He said its yield is much higher than most bonds in the UK market even though it is on a single A rating, which he said is due to not many people knowing about it and the area it operates being seen as being fairly volatile.
However, he said: 'The bond has seven years to maturity and yields 7.6%, so we felt the volatility was easily counter-acted by the yield you are receiving.'
The majority of the bonds Robinson invests in typically yield between 0.5% and 1% over gilts, with gilts yielding 4% at present. He has 25 holdings in his portfolio at the moment, all of which he said he is happy with and expects to make money on. He said the number of bonds in the portfolio increases when those names already in the portfolio become more risky.
Looking forward, Robinson said: 'We expect 2003 to be the exact mirror image of 2002. We feel growth in the first half of the year will be weak then improve in the second half. Corporates are now concentrating on improving their balance sheets rather than extracting value for shareholders, which will be beneficial for bondholders.'
The £59.6m Isis High Income has seen below-average returns over the three months to 20 January, gaining just 2.2%, bid to bid, compared to returns of 3.3% posted by the average UK corporate bond fund over the same time period. According to Standard & Poor's figures, it fares little better over the one and three-year time periods.
Over one year to 20 January, Isis High Income eked out a rise of 0.1%, after charges, compared to the sector mean of 1.5%, ranking it 52 out of 79 funds. Over three years it is ranked 47 out of 59 funds, after underperforming the sector mean return of 16%, with its returns of 13% offer to bid.
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