By Dylan Emery JP Morgan has brought out a fund giving exposure to the European and more mature US c...
By Dylan Emery
JP Morgan has brought out a fund giving exposure to the European and more mature US corporate bond markets.
The Luxembourg-based JP Morgan Global High Yield Fixed Income fund is a euro-denominated portfolio that invests mostly in B-rated debt.
Class 'A' shares in the fund are for investors with more than E50,000 and have a TER of 1.25%.
From E5m, Class 'B' shares become available and the TER drops to 0.9%. From E10m, the TER is capped at 0.6%.
The fund is inspired by its US counterpart, the JP Morgan Corporate High Yield Bond fund. The two portfolios will be run by the same team and in similar ways, although they have the ability to diverge. The market position of the new fund and the fact that it is sold within a Luxembourg Sicav means that there might be more of a bias towards European bonds.
Martha Metcalf, head of the high yield team at JP Morgan, said: "Most of the drive for the creation of the new fund came from European investors who would have been happy with 100% European issues."
The European high yield bond market, while expanding, still only represents 7% of the world market.
JP Morgan feels its broader potential investment universe gives greater investment freedom.
Nonetheless, the fund will be dominated by US issues and as the fund is denominated in euros, the portfolio is hedged backed into euros to neutralise the currency risk.
The fund holds about 75-125 securities.
The majority of the portfolio is held in 'B' shares, although it measures itself against the Morgan Stanley B/BB Bond Index.
It is currently worth E65m, with strongest support coming from Spain, Italy, France and Germany, with some interest from Latin America.
The high yield bond markets have not had a good couple of years. The returns for many funds in this area last year were negative.
The JP Morgan Corporate High Yield Bond fund achieved a 1.58% gain in dollar terms last year. However, this year JP Morgan expects this to pick up significantly.
It estimates bond defaults will sink from 6% last year to around 4% this year and total returns to be in the region of 8-10%.
In the European arena, corporate restructuring should provide plenty of the activity on which the fund will rely.
Telecoms, especially in Europe, are benefiting from deregulation and the M&A activity this is causing encourages bond issuance.
Metcalf and her team run both the US and European funds and have a shared strategy. When examining smaller companies, for example, the team looks for a strategic sponsorship from a larger company.
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