Insight pair add RMBS to fund range

Mr Waddington said adding a position in Monument Bond fund was justified, despite the very cautious mandate the team runs.

He said the underlying bonds are based on ultra-prime mortgages and rank very high in capital structures.

"These are interest-bearing bonds with very strong cash flows based on a ringfenced pool of mortgages," said Mr Waddington.

He said there is a difference between RMBS issued in the UK, Australia or Europe, which rank very high in creditor structures, and those issued in the US.

In the US, lower-ranking, low-rated mortgage-backed securities triggered the sub-prime crisis, but Insight is not adopting any exposure to this area, Mr Waddington said.

And he said the RMBS also provide a hedge against interest-rate risk, unlike corporate bonds which sell off sharply if the Bank of England begins to move rates upwards.

"RMBS are typically floating rate, meaning that coupons move with interest rates, thus mitigating interest rate risk for investors," said the manager.

"They are also very senior in capital structure. In a multi-asset context this investment represents a portfolio diversifier with the opportunity for growth.”

The Insight MM range is now 0.5 per cent weighted to Monument Bond fund.

The fund, ran by TwentyFour Asset Management, launched in June and aims to provide stable and predictable income through RMBS.

"This is a Ucits III fund so there is daily liquidity, and the underlying holdings that are RMBS give a lot of clarity – clearer even than corporate bonds," added Mr Waddington.

"Crucial considerations for us are a focus on quality and careful risk management," added Mr Waddington.

The range suffered last year, under the management of Patrick Armstrong and Ana Cukic-Armstrong, from sell-offs on holdings like bonds from RBS and Lloyds, the banks which nearly collapsed in the financial crisis.

Mr Pinggera and Mr Waddington took over the funds in January and sold off these racier debts. But, they have now rallied by around 400 per cent since March, meaning some of the losses on the range could have been undone if the new managers had remained invested.

But Mr Waddington said the funds are nevertheless performing ahead of their cautious targets of providing absolute returns based on Libor for this year.

"We are ahead of our targets this year, and we have done that while making sure we are working with a safety net," added Mr Waddington. "We are doing what our clients want."