Called Legg Mason Western Asset Global Total Return Investment Grade Bond Fund, the Dublin-domiciled Ucits will adopt an opportunistic approach without the constraint of a benchmark.
It will also use a combination of top-down global macro strategies and tactical sector allocation, as well as bottom-up security selection.
The investment product will be managed by Gordon Brown, co-head of global portfolios at Western Asset who, prior to joining the company in 2011, worked as an investment manager of fixed income for Baillie Gifford for more than 10 years.
He will be supported by fellow portfolio manager Andrew Cormack, who has been with the company since 2004.
The asset manager said the fund is focused on capital preservation and actively seeks to mitigate risk. In accordance, the managers aim to maintain the volatility of the fund between 4 per cent and 6 per cent
The fund will invest solely in investment grade bond markets, which have historically suffered much lower defaults than high-yield bonds, the company added.
The company also said that idea generation will be driven by Western Asset’s global investment strategy committee, chaired by chief investment officer Ken Leech, and will leverage the regional and sector expertise of the group’s 129 investment professionals across its seven global investment offices.
Mr Brown said: “Fixed income markets are at a very interesting juncture, with the potential for rate rises in the US countered by concerns over global growth, particularly in China.
“As such, financial markets should continue to be volatile, and therefore a flexible strategy that can exploit opportunities as they emerge could be an attractive addition to investors attempting to manage their fixed income exposure.”
Peter Matthew, an adviser with Cornwall-based Jacksons Wealth Management, said: “There may be an appetite for this type of product. Financial advisers who make decisions based on current market conditions are short sighted. A bond fund could be good within a balanced portfolio.
“The product is constrained, only investing in the investment grade bond market. The benefit of this is likely to be lower volatility, but it is likely to generate lower returns.”
He added: “People do not understand bonds – that is the issue. They think it is safe to invest in bonds, but that is not always the case. People should not be swayed by fund manager lingo.”
AMC of 0.75 per cent payable on the retail share class.
Bonds funds are similar to buses – you wait an age for one and a multiple turn up at once. Asset managers clearly feel that there is a substantial demand for these products. The common misconception when it comes to bond funds is they are among the safest investments; however, the reality is they are a lot riskier than they seem. Long-term government and corporate debt have been buffeted by a host of financial events in the past year, such as the Greek debt crisis and uncertainty over Fed rate hikes.
This is not to say that bond funds are bad investments – they are not. It may be, however, better suited as part of a well diversified portfolio.