Jul 19 2017

Kames' short-dated launch targets mid-single digit returns

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Kames' short-dated launch targets mid-single digit returns

Kames Capital has launched a short dated high yield global bond fund.

The fund will be run by its five-strong high yield team, responsible for $2bn (£1.6bn) of global high yield mandates, supported by Kames’ 28-strong fixed income team.

The bond fund aims to deliver mid-single digit per cent yearly returns through the cycle, while maintaining low interest rate and credit sensitivity.

The fund has a global remit to maximise its opportunity set and adopts a stock-picking approach.

It also aims to deliver lower risk returns with a sub two-year duration target, a five and a half year issue maturity limit, and a focus on the BB and B-rated segments of the corporate bond market.

The Kames short-dated high yield global bond fund, is managed by Stephen Baines and David Ennett with support by Jack Holmes. The fund also benefits from capital commitments by third-party investors.

Kames Capital is a specialist investment management business. The company manages £45.3bn on behalf of UK and international clients, including pension funds, government agencies, financial institutions, wealth managers, family offices and financial advisers.

Kames Capital specialises in fixed income, equities, property, multi-asset, absolute return and ethical investing.

Provider view:

Manager Stephen Baines, said: “We have a hugely successful 14-year track record of managing a dedicated global high yield strategy and delivering attractive risk-adjusted returns. We believe it is beneficial to adopt an active, high conviction approach with a global remit. This allows us to avoid the pitfalls of sector and issuer concentrations that develop from time-to-time within the index.

“Our analysis shows that both in periods of deteriorating credit risk and rising government bond yields, short- dated high yield bonds have shown greater price resilience than the broader high yield bond market. They also offer returns that are negatively correlated with government bond market returns.

“The Kames short dated high yield global bond fund uses the same proven and robust investment process as our broad market high yield strategy, offering investors a short-dated high yield portfolio managed under the stewardship of our High Yield team.”

Adviser View: 

Dennis Hall, chartered financial planner, at London-based Yellowtail Financial Planning, said:  “High yield bonds continue to worry me, and short duration high yielders are no different. 

Admittedly the element of risk may well be lower given the shorter term, but when things start to go wrong, they can unravel very quickly.  Bond investors who need yield return either need to increase the duration or move further down the credit rating scale – or both. 

But I haven’t been convinced for a long time that the additional risk investors take on is reflected in the overall return. You don’t get anything for nothing and the promise of mid-single digit returns should point to a level of risk akin to investing in equities. It may well be a diversifier, but I invest in short dated bonds to provide, amongst other things, some liquidity and stability in the short term, something I’m not sure this fund can necessarily deliver.”

Charges:

The annual management charge is 0.5 per cent on the B share class.

Verdict:

The launch of this short dated high yield global bond fund, affirms Kames Capital’s commitment to the market. However, some experts have said they remained unconvinced that the additional risk investors take on with high yield bonds is not always reflected in the overall return. So, it may have limited market appeal.