Royal & SunAlliance's latest launch, a high yield corporate bond fund, will be focusing on debt fro...
Royal & SunAlliance's latest launch, a high yield corporate bond fund, will be focusing on debt from sectors including telecoms, industrials and financials.
As first reported in Investment Week, the Oeic, the Royal & SunAlliance Extra Income Bond fund, has a target yield of 8.6%. The portfolio will be run by James Foster and will have its largest sector exposure to telecoms with about 34% in corporate issues from this area of the market. It will also have around 19% in industrials, 11% in financials, 11% in issues from the consumer sector, 6% in the leisure sector and 4% in property issues. It will have also have exposure to media, transport and sovereign and supranational paper.
The fund will initially hold 40 to 50 issues. In selecting stocks, Foster will be looking at factors including cash flow and the ability of the company to pay its debts. Royal & SunAlliance Investment Management has about £4.25bn under management in corporate bonds.
Foster said: "We are in a low interest rate and inflation environment and the pick-up in growth across Europe is good for high yield bonds. Default rates, which have been rising, are anticipated to fall.
"We like telecoms as the large national companies are diversifying away from their national boundaries and capacity growth is needed due to factors such as the internet. Another one of our favoured sectors is tobacco. There is a lot of litigation in the US but we do not think that will affect UK companies like Imperial Tobacco and Gallaher. The cash flow for these companies is fantastic."
IFA commission for Isa investments in the fund is 4% initial and 0.25% renewal. For Oeic investments, IFA commission is 3% initial and 0.25% renewal. The initial charge for Isa investments is 4% and for Oeic investments 5%. The annual management charge on Isa and Oeic investments is 0.75% which is taken from income. Income will be paid quarterly.
Around 50% of the portfolio will be invested in investment grade bonds with the remainder in sub-investment grade debt, which will include exposure to European high yield bonds. The fund will have just under 15% in A-rated corporate bonds with 35% in BBB and just under 20% in BB. It will also invest 31% in B-rated corporate bonds. The fund will not initially be investing in corporate bonds lower than B. More than 65% of the currency exposure in the fund will be in euros with over 30% in sterling, with the euro exposure hedged.
The risk controls on the fund include not having exposure of more than 2.5% to any single BB or B-rated bond and no more than 4% to any BBB issue. The fund will have a maximum exposure to emerging markets of 15%.
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