The $120m (£82m) Investec Investment Grade Corporate Bond fund aims to provide a high level of income with some potential for capital gains primarily through investment-grade corporate bonds from around the world, with a focus on developed markets.
Run by Jeff Boswell and Garland Hansmann, who joined the firm in 2015, this Luxembourg-based fund is managed to try and minimise any currency risks and would be hedged into the desired currency.
Mr Boswell notes: “The strategy aims to outperform the Merrill Lynch Global Broad Market Corporate index (currency hedged) by 1 per cent a year, gross of fees over rolling three-year periods and targets a tracking error of 2-3 per cent.”
The A accumulation dollar share class sits at a risk level of three out of seven, with ongoing charges of 1.21 per cent, according to its key investor information document.
The manager explains the strategy is managed by a team of seven dedicated credit investment specialists. The process has been developed over a number of years and is underpinned “by our belief that careful security selection, coupled with a rigorous monitoring and risk management process, are the principal requirements in building robust credit portfolios that outperform over time”.
Mr Boswell notes the process can be broken down into top-down and bottom-up elements that aim to capture experience and manage risk. Portfolios are principally built from the bottom up, while risk allocation is made from the top down.
“Underlying this philosophy is our belief that credit market drivers can be broken into three ‘compelling forces’ – fundamentals, valuation and market price behaviour,” he says.
“Our process incorporates a range of strategies across regions, industries, credit curve, credit quality and issue selection. We believe this helps to ensure we are not reliant on one investment theme and enables us to outperform in a variety of market conditions. We believe that relative value opportunities present themselves in both bear and bull markets.”
Perhaps surprisingly for a fixed income fund, the strategy is managed within Investec’s multi-asset investment team, with Mr Boswell and Mr Hansmann arriving in 2015. The two managers aim to build on the strategy’s long-term investment returns by implementing the best investment ideas with a high level of conviction.
“It is managed by one global team based in London and New York to exploit the opportunity set in a consistent way,” adds Mr Boswell. “Interest rate exposure is managed independently as an additional source of returns, and the team cooperates closely with investment professionals from other asset classes.”
| EXPERT VIEW - Darius McDermott, managing director, Chelsea Financial Services |
| This fund had a change of managers just over a year ago and, although still early days, it seems to have paid off in terms of performance, which has picked up considerably. Like the Kames fund, it invests globally, but currently has a much more geographically diversified portfolio with just 15 per cent in UK bonds. Instead, it has about a third of the fund in US bonds and a third in European ones. The yield is also lower at 2.78 per cent and, personally, I like corporate bond funds to give me a bit more than this to compensate for the increased risk. |
Although the portfolio is principally built through bottom-up fundamental analysis, “we are firm believers in the value that can be added from the dynamic assessment of market drivers”.
The manager explains: “In constructing the portfolio, the insights from the top-down process are an important guide in ensuring individual ideas are combined to achieve the desired positioning.”
The fund’s Sterling hedged A share class has delivered a five-year return of 17.6 per cent to April 28 2016, while the IA Sterling Corporate Bond sector delivered an average 29.6 per cent return, according to data from FE Analytics.
Mr Boswell points out the story of the year so far has centred on a sell-off in most financial markets early in the first quarter, “followed by a significant, largely uninterrupted rally since then”.
He continues: “Investment-grade credit is not immune from this volatility and, while it fared better than most asset classes, followed a similar pattern. We have subsequently moved to a more balanced stance through active participation in the primary markets, as well as selective buying in the secondary markets. The primary market has been particularly active this year and we have used that avenue as an attractive means of buying into what we believe are still decent valuations.”
The manager attributes the fund’s positive performance to factors including a regional bias towards Europe, active management of duration positioning and an underweight in sectors that have been subject to significant stress in the past year, such as energy and commodities.
He acknowledges, however, that the fund has “slightly underperformed since the market low point of mid-February”.
