Group seeking to rename friends provident high income bond and alter charging structure
Isis is seeking unitholder approval to rename the Friends Provident High Income Bond fund Isis Strategic Bond when the group rationalises its fund range this summer.
The fund, which celebrated its third anniversary on 8 February, has always had an unrestricted investment mandate and the name change is set to reflect this.
To coincide with the change, Isis is also seeking approval to take the 1% annual charge on the fund from capital rather than income to boost yield.
The fund has been run by James Foster since September last year, following the merger of Friends Ivory Sime and RSA Investments. Foster replaced Philip Hunt, who left the group.
Since taking over the fund, Foster has increased its exposure to high-yield bonds from approximately 40% to 65%, with the remainder invested in investment-grade paper.
However, he does have the flexibility to change the balance between high-yield and investment grade bonds at any time, to reflect the bond team's strategic views. As such, it is a best ideas fund.
Jason Hollands, head of communications and strategy at Isis, said from a product positioning perspective, the fund will be a corporate bond equivalent of the group's equity Prime fund range, which consists of more aggressively managed UK, European and Income portfolios.
Foster said the main reason for the shift from investment-grade to high-yield bonds is the altering of individual company gearing structures in the current bear market.
'Going into a growth cycle, companies used to gear their balance sheets,' he added. 'Now, with equity markets in decline, the model has changed and companies are having to focus more on having sound balance sheets.'
In most cases, Foster said, a reduction of gearing leads to an increase in a company's rating, which in turn leads to an increase in the price of the bond. This, he said, is obviously good news for bond investors.
Foster's main concern with regard to investment-grade bonds is that they have now become closely correlated with gilts. Rising gilt yields, as a result of increased issuance in 2003, will lead investment-grade yields to follow suit, eroding capital value, he said.
As such, Foster has more BBB and single-A bonds in the portfolio as he believes they are less correlated to gilts than AAs and AAAs.
Foster said: 'The most important thing I am trying to achieve on this fund is total returns, rather than worrying about what the yield might be. The yield is very variable and can change from one week to the next.'
Over three years to 17 February, the fund is ranked third out of 28 in the UK Other Bond sector, returning 18.4%, bid to offer, compared to the sector average 13.48%.
Patience must be a watchword
'Misleading, unclear, unfair' promotions
Will extend to wider models
1,414 in 2017/18
UK Multi Cap Income sees success