Threadneedle Investments has launched a European High Yield Bond fund aimed at both retail and insti...
Threadneedle Investments has launched a European High Yield Bond fund aimed at both retail and institutional European investors. The fund is an open-ended investment company (Oeic) denominated in euros. The initial charge is 3.75% and the annual management fee is 1.25%. The minimum initial investment is £2,000 or E2,500.
The fund, which was launched on 8 March 2000, is managed by Barrie Whitman, head of Threadneedle's high yield team, together with two dedicated credit analysts. So far, the fund has raised just E7m.
Whitman explained that the fund will invest mainly in below investment grade (less than BBB) and euro-denominated bonds. At times it may contain issues denominated in other currencies which will be hedged back into euros.
Whitman described his investment approach as very credit-intensive, combined with active management of relative values and returns. The aim is to create a diversified high-yield portfolio that performs better than the various European bond indices.
The evaluation and selection of investment is done by Whitman and his two analysts, all of whom are experienced in analysing balance sheets. Additional industry and market background is drawn from Threadneedle's own equity fund management desk. So far the fund has 25 corporate bond positions and is expected to have between 30 and 40 names once it is fully invested.
The fund will usually have between 2% and 5% in a single position and is not expected to exceed 6%. At present the yield target is in the region of 10.5%.
The manager's indicative sector allocation figures show a portfolio that is well diversified between a range of industries. Whitman said: "The European high-yield market is still a young market and the issue of diversification is very important."
The main divergence between his fund and the European high-yield indices is in his allocation to telephony. His 26% compares to over 60% in the indices. He added: "Our exposure to telecoms is well diversified by sub-sectors such as fixed and mobile which have different dynamics, characteristics and competitive environments. Approximately 25% of our telecom companies are in the process of being taken over and therefore the risk there is more of an event risk rather than an industry risk."
Although there are no stop losses, a change in the view on the credit rating and/or a change in the price of the bond can trigger a sell decision.
Whitman anticipates sizeable demand from the Continent. He said: "The shape of the yield curve and the introduction of the euro are creating a lot of yield demand in Europe."
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