Investec to merge away bond fund amid income headwinds

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Investec to merge away bond fund amid income headwinds

Investec Asset Management has proposed to merge away its £82m Strategic Bond offering because of the “lower level of income” available, making it the fourth fund house in recent weeks to consider a product overhaul due to yield struggles.

The asset manager has proposed to merge the fund, which seeks an income primarily from high quality bonds, into its £139m Diversified Income portfolio, with the plan going to a vote in September.

The latter portfolio invests “mostly in bonds” but can also use shares and related derivatives. At the end of July the fund had weightings of 64 per cent to bonds and 33 per cent to equity.

In a communication to investors, Investec Asset Management UK client group managing director David Aird said: “With global interest rates at record lows, in some cases negative, bonds are consequently providing a lower level of income than they have historically.”

Mr Aird added: “For investors seeking sustainable income with low volatility, Investec believes it is better to invest not just in bonds, but instead follow a multi-asset approach which invests in a broader range of asset classes, including equities, with a focus on quality investments.”

The firm said while the Strategic Bond vehicle had seen periods of positive performance in the last five years, it had been “at times constrained by investing only in bonds”.

Investec is not the first fund house to consider revamping its offering in light of current monetary policy and its effect on the search for income.

Earlier this month it emerged the BlackRock Income Strategies trust - formerly known as British Assets - was seeking to review its investment objective, citing lower interest rates and the “prevailing market conditions and investment outlook” of recent months.

Last week Investment Adviser revealed the Legg Mason IF Brandywine Global Income Optimiser fund was to abandon its annual 8 per cent income yield target, with managers warning it had become “extremely difficult” to achieve under current market conditions.

At the time, Legg Mason said: “Over time, bond markets have changed significantly and the yield on low-rated bonds has fallen substantially.

“As a result, under current market conditions, it is extremely difficult to pursue the fund’s policy of seeking to achieve a yield of 8 per cent without materially changing the risk profile of the fund.”

In the same week it transpired that Aberdeen Asset Management was seeking to overhaul its Managed Distribution fund after acknowledging the product’s ability to meet its current income objective is “challenging”.