Threadneedle is closing its UK Money Securities fund after it experienced huge losses and redemptions since the start of the credit crunch in summer 2007.
The fund, managed by Paul Witchalls, saw its assets fall from around £520m in May 2007 to around £127m now, according to the firm, which says it has received approval from shareholders and the FSA to begin closure proceedings.
Threadneedle says it will not compensate investors for capital losses sustained during investment in the fund, which is expected to close on 14 December, although it will pay for most costs associated with its closure.
UK Money Securities invested in a wide range of cash and money market securities and its investment strategy over the past five years has included the use of floating rate notes (FRN) as a deliberate mechanism to generate positive yield.
However, over the last two years external market conditions have significantly impacted the liquidity of the asset-backed FRN market and therefore the ability to trade these underlying assets. As a result the fund's performance was impacted severely by these FRN holdings.
As at 28 September, the fund was down 22.1%, 23.5% and 18.1% over one, three and five years against IMA Money Market sector averages of plus 0.2%, 8.3% and 15.7 % respectively.
"Our decision to close the fund has been taken after a period of review but has been prompted by a substantial reduction in size of the fund and the continuing illiquidity of FRNs held by the fund," says a Threadneedle spokesperson.
"We believe it is in the best interests of shareholders to close the fund and shareholders approved this decision."
'Life catches up with us in the end'
‘Personalised Predictive Analysis’ tool
Summer series continues
Both start in August