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The launch of the £206m Henderson Credit Alpha fund in July 2007 - mere weeks before credit markets started to freeze over and queues formed outside Northern Rock - was "up there with the timing of the launch of the Titanic", in the rueful words of Stephen Thariyan, Henderson New Star's head of credit.

The track record Mr Thariyan and his co-manager Thomas Ross have built up over the two years since launch is far from linear - as some investors in the absolute return sector might expect. But after equity-like gains in April and May, it now looks back on track to hit its benchmark return of Libor plus 300 basis points this year.

From launch to June 15, it posted a cumulative net gain of 7.5 per cent - less than cash, but much more than most long-only credit funds, which are still nursing losses over three years.

As a result of the improving performance record, as well as the acquisition of New Star and its retail sales team, Henderson would now like to start marketing the Ucits-III fund more actively to advisers. It has so far been sold largely to institutional investors and pension funds.

Whether the fund becomes popular with advisers will depend not just on its ongoing track record, but on the ability of the team to explain its complex investment strategies in ways advisers understand and trust – a challenge for all absolute return vehicles, but arguably an even greater one for the fixed income vehicles.

However complex the techniques and instruments involved, Henderson Credit Alpha does do what it says on the tin: it is exposed exclusively to credit risk, and it seeks returns solely from alpha.

The focus on credit means all interest-rate risk is automatically hedged out. Crucially, investors do not face the prospect of their returns being devalued by rising government bond yields, sovereign default or rampant inflation. They are investing solely in the spread of corporate over government debt.

Meanwhile, the 'alpha' tag stresses that the fund has no automatic exposure to market risk or 'beta'. In other words, it is a market-neutral vehicle, and if it does contain beta exposure, that is a conscious manager choice. Market risk is replaced by manager risk.

The managers seek to make money in four broad ways. The purest market-neutral strategy is the so-called 'paired trade' or 'relative value' play: buying one credit long and selling another in the same sector short against it. If the sector moves homogeneously up or down, the fund is not impacted. But if the analysts correctly identify disparities within a sector, the fund makes money.

The credit analysts are also allowed to identify bonds they like or dislike, even if they cannot find a pairing in the same sector. Another alternative is to find a pairing in a different sector – effectively then making a broad sector call.

These ideas, which are not strictly paired trades, sit in what the managers call their "directional book". This is designed to express their top-down views, including both sector bets and market-direction calls. They can use indices to steer the portfolio in line with their overall views if these conflict with the net positions generated by individual credit and sector selection.

Market calls proved the most important driver of returns - or losses - for credit fund managers last year, Mr Thariyan points out.

"One of the biggest ways to make money in credit over the last year in whatever type of fund was to enforce a top-down view - rather than thinking all your return would come from stock picking," he says. "When we reached the Armageddon stage last year, you had to be very conscious of just how long you wanted to be, if you wanted to be long at all - or what return you'd get from being short."

Third, the managers try to boost returns with what they call their "structural book". The idea here is to invest in high-yielding assets, such as asset-backed securities, that are close enough to maturity not to follow the swings of the market.

Finally, Mr Ross trades like a hedge fund manager to take advantage of short-term volatility. The managers call this the "tactical book". Mr Ross is an ex-dealer - a vital qualification for understanding the technical factors that drive credit markets in the short term. Most trades are closed after one or two weeks and may or may not conflict with the longer-term views of the team. For example, he recently went long the iTraxx Crossover index, which tracks the high-yield sector, although the team is bearish on high yield in the longer term.

All four of these strategies have yielded several percentage points of return over the past two months, which accounts for the sudden uplift in both track record and manager optimism. Their investment philosophy now seems justified.

But last year was another story. Paired trades did not work because the credit default swap market – which most managers use to 'short' credits – had become highly illiquid, making the costs of shorting outweigh the potential gains. This put the brakes on the 'relative value' part of the portfolio.

Then, Mr Thariyan underestimated the scale of the banking problems in October, going long too early on banks like Bradford & Bingley, which had already been heavily sold off. The fund lost 5 percentage points - wiping out the year's gains plus some - during the crisis last autumn.

Making matters even worse were the asset-backed securities (ABSs) in the 'structural book'. The team thought it had bought cheap, but ABSs cheapened even further as property prices continued to deteriorate. This situation continued until March.

Yet liquidity concerns then eased, and the managers' frozen trades started paying off. This was also the point when the equity and credit markets picked up - paradoxically making Henderson Credit Alpha look like a geared beta play.