Mr Basile has been reshaping the fund since taking it on in July, following the departures of previous managers Peter Allwright and Stuart Frost. He is now centring the portfolio on a core holding of convertible bonds.
Mr Basile previously ran the fund from its launch in 2007 until 2010, when Mr Allwright and Mr Frost joined from Threadneedle and changed the product’s focus from that of a cash alternative to a strategic trading portfolio with an active currency overlay.
When RWC hired the duo, it said the managers ran “one of the most highly regarded absolute return franchises” in the market, as they were then responsible for roughly $3bn (£1.8bn) in absolute return bond portfolios.
But the fund’s new direction proved unsuccessful.
The vehicle lost 3.2 per cent under their stewardship, according to FE Analytics, compared with a 1.6 per cent rise in its one-month Libor interest rate benchmark. It also failed to raise significant assets: when Mr Allwright and Mr Frost left RWC, the fund had roughly Euro7m (£5.8m) invested in it.
Mr Basile said the portfolio under his control was now a “strategic reserve” fund, with a target return equivalent to 3-4 per cent above cash.
“The fund was very liquid when we took it on but was positioned very negatively to take advantage of a big negative event, such as a euro break-up,” Mr Basile said. “[But] our view is quite different.”
Instead, the manager is building in corporate bond exposure on top of the fund’s convertible bond “base”. In addition he has employed “macro trades” to reflect thematic views, including a long position in financial equities and a short position in the S&P 500, betting that the US’s leading stock index will fall.
Mr Basile said he was “still building out” new positions and trades in the portfolio, which would likely mean “substantial change” from its previous structure.
The manager added: “We want to have exposure to sectors with a bit of cyclicality and growth, but we don’t want stocks that are sensitive to interest rates, like utilities and telecoms.
“Technology, financials, consumer discretionary – this is where we think the value is. Anything with a bit of cyclicality will be good but obviously this comes with a bit of volatility too.”
RWC’s head of retail distribution John Bennett said the company was not devoting a great deal of resources to increase marketing or distribution of its Core Plus fund, as Mr Basile had yet to complete his overhaul of the product.
However, he claimed that RWC’s global and Asian convertible bond products, which Mr Basile also oversees, were experiencing “exceptional flows” from retail and institutional investors.
What are convertible bonds?
RWC convertibles manager Davide Basile is using convertible bonds as the ‘core’ of the RWC Core Plus fund. The assets are designed to capture the upside of a firm’s share price in the same way an equity does, but with a ‘floor’ to the downside, giving some protection against share price falls.
A convertible bond’s sensitivity to its issuer’s share price is known as ‘delta’. A delta reading of 50 per cent indicates that the convertible bond will catch roughly half of the price rise of a normal equity. Investors in the asset class rely on the convertible’s ability to reduce its sensitivity to equity price falls, the measure of which is known as ‘gamma’.
John Bennett, head of retail distribution at RWC, said investors were increasingly seeing convertible bonds as an “interesting new part of fixed income allocations” as they were far less sensitive to fluctuations in interest rate expectations.
The firm has $1.9bn (£1.2bn) in its RWC Global Convertibles fund and a further $46m in the RWC Asian Convertibles fund, launched last year.
