Fixed IncomeSep 15 2014

Fledgling fund house reveals launch plans

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Fledgling fund house TwentyFour Asset Management is looking to catapult itself into the big leagues by launching a new range of outcome-oriented investment products.

Since the changes to the pensions regime announced by George Osborne in this year’s Budget, fund management houses have been scrambling to launch volatility-targeted ranges of income funds, looking to deliver consistent low-risk returns to pension funds and pensioners.

Now TwentyFour is preparing to launch two funds for new hire Chris Bowie, including a Defined Outcome 250 fixed income fund that the firm plans to expand into a full range.

While the Defined Outcome funds will be launched into the retail market, TwentyFour said a big part of the rationale for launching them was to meet the demand from pension funds for such products.

Mr Bowie joined TwentyFour at the start of September, having left Ignis Asset Management after the firm was bought by Standard Life Investments.

He will be the lead manager of the TwentyFour Defined Outcome 250 fund, which TwentyFour hopes to launch in early 2015.

The fund will aim to deliver an annual return of cash, measured by Libor, plus 250 basis points, while targeting a certain level of volatility. It aims to deliver a consistent return rather than shooting the lights out in terms of performance.

If the Defined Outcome 250 fund proves popular, TwentyFour plans to launch a range of Defined Outcome funds to suit various types of investor.

The strategy is a change of tack for TwentyFour. Until now, its funds have mainly aimed to deliver the highest return possible within a particular asset class or strategy, without taking on too much risk. But the new fund will focus on reliability and consistency of returns and the close management of risk.

Mr Bowie said: “We cannot guarantee a return but we want to give visibility on the return profile with much lower volatility.” He added that he will deliver returns by focusing mainly on shorter-dated bonds of various types, including things such as asset-backed securities – an asset class TwentyFour specialises in.

He said he will employ derivatives to hedge out certain market risks but will not put on any outright short positions.

TwentyFour is also looking to launch another fund, the TwentyFour Corporate Bond fund, “as quickly as possible” and hopes to bring it to market by the end of this year.

Mr Bowie said it would resemble very closely the top-performing Ignis Corporate Bond fund, which he ran for the past five years. The only difference would be that the new fund would have the freedom to invest up to 20 per cent of its assets outside of investment-grade corporate bonds.

This matches the IMA Sterling Corporate Bond sector rules, but Mr Bowie said the remit of the Ignis fund had restricted him from utilising that flexibility.

Under Mr Bowie’s management, the Ignis Corporate Bond fund delivered top-quartile returns in the IMA Sterling Corporate Bond sector in one, three and five years, according to data from FE Analytics.

TwentyFour has yet to finalise certain aspects of the new fund’s structure, such as whether it will be domiciled onshore or offshore, but John Magrath, head of distribution, said he had already found investors who had expressed interest in backing the fund at launch.

Bowie’s new position on bonds

Chris Bowie made a splash in 2012 when he warned investors not to buy his Ignis Corporate Bond fund because the outlook for conventional bond market returns was so poor.

Through 2013 as well, the manager maintained that it was the wrong time to buy investment-grade fixed income. But last week he said he will be investing his own money in the new TwentyFour Corporate Bond fund.

“It is definitely a better time for corporate bonds,” Mr Bowie said.

His argument against corporate bonds had always been that, once inflation was factored in, the ‘real’ yields on bonds were not worth it.

But he said while bond yields have remained broadly static, current inflation and inflation expectations in the UK and Europe have fallen, so real yields have risen.

Mr Bowie also said the recent actions of European Central Bank president Mario Draghi, including buying asset-backed securities in what Mr Bowie described as “private sector quantitative easing”, were also a “big positive for European fixed income”.

“It is not a massive bull market [for corporate bonds] but it is not the doomsday scenario any more,” he said. “My own money is now invested in fixed income, whereas it was not before.”

He said he would also be investing in the TwentyFour Defined Outcome 250 fund next year.