The mandate of the Threadneedle European Bond fund has been changed to enable it to up its yield by ...
The mandate of the Threadneedle European Bond fund has been changed to enable it to up its yield by investing a greater proportion of the portfolio in corporate paper.
The fund, managed by Sandra Holdsworth, will be able to invest up to 40% in investment grade corporate bonds, double the previous internal constraint.
The move reflects Threadneedle's view that the investment grade corporate bond market is rapidly maturing and will offer greater yield-enhancing opportunities as the European government debt market converges and issuance slows because of the single currency and EU restrictions on budget deficits.
As yields on European government bonds converge, less value can be added through currency hedging and asset allocation, while low interest rates mean corporates are looking more attractive vis-Ã -vis government bonds.
Holdsworth said: 'The European investment grade corporate bond market is growing more rapidly, with companies generally issuing in euros and sterling and in greater size.
'Telecoms is still a large sector but it is a similar size to utilities and there is an increasingly large proportion of financials and industrials.'
She added that default rates have peaked and, as long as the economic recovery bites, the current climate could be positive for the sector.
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