First fund of bonds funds sees Forsyth expand further

Offshore funds of funds manager and research company Forsyth Partners has launched its first fund of bond funds. In a separate development, the company looks set to expand its assets further in a deal it is negotiating to manage a fund of funds for Schroders.

The Forsyth Global Bond fund will be the first fixed income product in the company's range and will initially have a portfolio of 25% sovereign debt, 45% corporate/high yield debt, 25% emerging markets debt and 5% alternatives. It will be a focused product, with 12 holdings at first, never increasing beyond 15.

To start, the fund will include funds from Aberdeen, Ashmore, Mellon Newton and PIMCO. It will be available from the beginning of 2002, subject to Central Bank of Ireland approval.

The minimum investment is US$10,000. The funds are available at NAV and advisers can determine their own commission level up to a maximum of 5%. Advisers also take a share of Forsyth's management fee.

Given the consensus view that we are reaching the bottom of the recent frenzy of global interest rate cuts, and therefore the peaking of the capital value of bonds, it seems unfortunate timing for the launch of this unusual product. But Forsyth takes these criticisms head-on.

'The potential for government debt may be limited, but the global fixed interest market is extremely diverse and attractive opportunities exist in many subsets of that market,' said Rossen Djounov, managing director of investment and research.

'Typically, global bond funds concentrate the bulk of their portfolios on sovereign and high-quality credit instruments. Presently the real opportunities are occurring elsewhere and we intend to have a strong emphasis in our portfolio on corporate and high-yielding debt instruments, emerging market bond funds and other alternatives.'

As far as corporate bonds are concerned, the company admits that in the long term, investment grade instruments will match interest rates, but they will still outperform sovereign debt.

'The extent of the outperformance will depend on the initial credit spread and these spreads are wider today than they have been for some time,' said the company. 'Again there is opportunity for capital appreciation.

'As the interest rate cycle evolves there will be times when we revert to major commitments in traditional government bonds.'

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