Franklin Templeton has launched a dedicated fund designed to tap short-duration opportunities in the European bond market.
As revealed by our sister publication Citywire Global, the Luxembourg-domiciled FTIF Franklin Euro Short Duration Bond fund was officially launched on 21 February 2014.
The fund will be overseen by the group’s head of European fixed income, David Zahn, and fund manager Rod MacPhee, who joined the firm in November of last year.
Citywire Global had reported Franklin Templeton’s plans to launch the fund last summer but no official announcement had been made until now.
It will invest mainly in high-quality bonds drawn from short-dated fixed- and floating-rate debt securities and debt obligations.
These are both drawn from corporate and sovereign bond issuers from within the eurozone, which are investment grade or, if unrated, of comparable quality.
It may also, where applicable, purchase securitised debt and certain financial derivative instruments including index-based financial derivatives, credit default swaps and currency forwards.
Zahn said the timing of the fund launch was reflective of an attractive backdrop for investors seeking short duration opportunities in a low rate environment.
‘The ECB is in a very different position to the Bank of England or the Federal Reserve. Whilst people in the UK may be concerned about rates potentially going higher, we are not as concerned about that in Europe, hence the decision to launch this fund.
‘The short duration end has better diversification benefits, as short duration assets tend to not move in line with the market and have less correlation to other asset classes. In addition, investors can get a bit more yield without adding more risk.’
Commenting on the average duration involved in the fund, Zahn said it will target around two years, although he stressed this is not a constraint if circumstances change.
‘That is not a restrictive position, as we can shorten duration further if we feel we are more negative on rates or go out further if we become more positive. There is no stated boundary – the investable universe is out to five-year maturity.’
Zahn said the fund, as well as the recruitment of MacPhee, marked a significant strengthening of the European fixed income operations, which he took as head of in April 2013.
‘This really is the last building block to have in our European fixed income fund range which currently includes a money market fund up through to a total return fund, an investment grade bond fund and a high yield bond fund.’