group adds to fixed interest portfolio with high yield bond and investment grade bond funds
Baillie Gifford has launched two fixed interest funds, the High Yield Bond fund and the Investment Grade Bond fund.
The offerings will sit alongside Baillie Gifford's existing Gilt and Fixed Interest fund and Corporate Bond fund, to provide a comprehensive range of fixed interest vehicles with an array of targeted yields and risk profiles.
The two funds will be offered at a 0.5% discount from their usual 3.5% initial charge. They will not be Isable until after the current Isa season.
The High Yield fund, which is to be managed by Ken Barker, will offer a targeted gross redemption yield of 10.8% paid quarterly.
Although the fund will primarily invest in sterling issuance, it will also look to the continent in order to broaden its universe.
Barker said: 'In the high yield fund, we have decided to go for euro-denominated bonds as well because the sterling high yield market is quite small. The euro-denominated bond holdings will be hedged and they will not exceed 20% of the portfolio.'
The Investment Grade Corporate Bond fund, also to be managed by Barker along with Stephen Rodger, will have an estimated gross redemption yield of 5.5%, again paid quarterly. The fund will be benchmarked against the Merrill Lynch Gilt index.
Barker said: 'The fund will be a pure investment grade bond fund investing all the way from AAA-rated bonds to BBB minus.' The fund already has assets of £115m, representing in-house assets previously in segregated portfolios, which Barker expects to rise up to £150-160m in the next few months. The High Yield fund has assets of £50m from the same source.
The existing Baillie Gifford Corporate Bond Fund, which sits in the Autif UK Other Bond sector due to its overweighting of high yielding bonds, will remain unchanged, offering a yield of 6.3% monthly. The fund will sit between the investment grade corporate bond fund and high yield fund in terms of risk-reward ratios.
Barker said a significant portion of the fund's non-investment grade bond holdings are unrated, rather than high yield and, if rated, at least two thirds would be of investment grade quality.
The Gilt and Fixed Interest fund will continue to pay a quarterly yield of 2.79%. The fund will be converted into a pure gilt offering though. The fund sits in the Autif corporate bond sector because a third of the fund is invested in corporate paper.
Barker said there will be some overlap between the fund's holdings. For example, the Corporate Bond fund, which is to remain one-third invested in high yield and two-thirds in investment grade bonds, will hold names taken from the High Yield and Investment Grade Corporate Bond funds' universes, respectively.
Rodger and Barker said the funds have been run with a defensive slant over the calendar year to date and that looks likely to continue for the near-term. The house has been overweight autos, financials and utilities over that time.
Barker also said the house remains cautious of certain elements of the high yield sector, citing telecoms as an example. He said while considerable risk remains in the sector, quality names like Colt Telecom would rise above the morass.
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