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PSigma and TwentyFour target 7% yield via bond fund
by Emma Dunkley on Mar 06, 2012 at 10:32
The fund, which opens with nearly £50 million in assets, has been designed to generate a more solid return for investors and minimise duration risk, by selecting corporate bonds from Europe that are due to redeem by 2016.
The fund will mainly invest in lower-rated investment grade names and the higher quality high yield companies.
Mark Holman, managing partner at TwentyFour Asset Management, said: ‘In order to reduce default risk, we have deliberately focused our investments on a relatively low number of favoured issues for a bond fund (the fund will hold around 50-60 bonds) and will not take excessive credit risk in the lowest rated issues.’
At launch, the fund will have an average rating of BBB and will hold 30% in high yield.
Tom Becket, CIO of PSigma Investment Management said: ‘This fund will also help us to bolster another key theme in PSigma’s investment strategy; the 'Hunt for Yield'.
‘In simple terms we believe the mis-pricing that has occurred in credit markets due to the chaos in European bond markets has left the relative and absolute yields on offer from corporate credits very attractive.’
He added with official interest rates stuck at near zero, and with the yields available on government bonds at very low levels, the yields on offer from European corporate bonds are currently very attractive.
Becket said in order to provide this 7% yield, the fund is taking a higher risk of default than by investing in government bonds, although he feels investors will be adequately compensated for taking this risk.
‘After the recent market rally we have reduced our equity weightings, in order to facilitate an investment in this fund,’ said Becket. ‘It is our central view that we will be able to generate long term average equity returns through this product, with far lower volatility than that in equities.’
He added: ‘At the end of 2016, when the bonds have redeemed, we will then be able to reshape the portfolio to focus on the next opportunities that we see in global fixed interest markets.’
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