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Home > Investments > Fixed Income

By Aimee Steen | Published Jul 31, 2012

Product review: S&W Medium-dated Corporate Bond fund

Investment-grade bonds are the primary target of the new launch from Smith & Williamson.

The S&W Medium-Dated Corporate Bond fund, which launched mid-July, is the latest in the investment house’s fixed income range.

It will be managed by Ian Kenny, manager of the S&W Short-Dated Corporate Bond fund, and focus primarily on 6-12 year investment-grade corporate bonds denominated in sterling, dollars and euros.

The fund will have 50-75 holdings in total. Included in this remit is up to 20% in sterling supranational bonds and up to 10% in UK gilts. Overseas currency will be hedged, but derivative strategies will be avoided otherwise.

Two share classes will be applicable to the fund. For A-class shares, the minimum investment is £1,000 with an AMC of 1%. For the B-class shares – which S&W says will, in due course, be its RDR-ready class – the minimum investment is £250,000 (to be waived for fund supermarket deals) and the AMC is 0.65%.

Having a UCITS structure, fund is domiciled in Dublin and denominated in sterling.


MM view

Smith & Williamson says advisers prefer bond funds focusing on a certain duration as they have more control. General bond funds could invest anywhere, but with a medium-term mandate investors know what they are getting and what level of duration risk they should expect in return.

Picking a section of the yield curve could prove a sensible approach and adding a medium duration offering to its existing range should help investors weigh up the pros and cons of each type.

According to S&W, the low interest rate environment is likely to be sticking around for the foreseeable future. It plans to apply a tried-and-tested approach to the medium-term fund following its existing short-term vehicle, namely steering well clear of banks or euro denominated bonds for now and hedging any dollar exposure.

While the two cannot be directly compared, the S&W Short-Dated Corporate Bond fund returned 5.6% over one year, so a decent return is being achieved. Its volatility is around 2, although investors will be exposed to more duration risk with a medium-term bond fund so it is likely this will be higher for the new fund.

Interest in this fund will likely come down to whether investors have a conviction in equity recovery, or if they still prefer the relative certainty of fixed income.


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