Capital Group has expanded its proposition to the European market with the launch of a Luxembourg-domiciled US corporate bond fund.
Launched on the 21 March, the new product mirrors the asset manager’s existing strategy, which targets risk-adjusted returns from a portfolio of principally investment-grade US corporate securities.
It targets a high level of total return consistent with capital preservation over the long term, the investment house said.
The annual management charge for the Z share class – which would be the retail class in the UK – is 0.5 per cent, with the additional expenses capped at 0.1 per cent.
Hamish Forsyth, European president of Capital Group, said: “This new fund launch is the latest example of Capital Group’s ability to bring to a wider audience the proven benefits of its attractive investment strategies that have previously been available only to US investors. It provides further evidence of our commitment to continue to build our business across European markets.”
The US Corporate Bond strategy will be the fourth in the series introduced to European investors, following the launch of Capital Group New Perspective Fund in October 2015, Capital Group Investment Company of America in June 2016, and Capital Group New World Fund (LUX) in October 2016.
Provider view
Jeremy Cunningham, investment specialist at Capital Group, said: “For many European investors facing the challenge of low yields in domestic bond markets, US investment-grade corporate bonds offer an attractive way to access higher yields without significant additional risk exposure.
“For investors concerned about buying US bonds, with the Fed [Federal Reserve] likely to hike rates, it’s interesting to note that US corporates have typically fared well in periods of gradual rate rises.
“We believe our deep, fundamental research capability in an asset class relatively under-researched by comparison with equities, offers an exciting opportunity to generate returns from security and sector selection.
“This focus on bottom-up analysis is particularly important in the current environment of rising US rates, and relevant now as we are relatively late in the credit cycle in the US so there are fewer macro tailwinds to help portfolios.”
Adviser view
Andrew Day, principal director at Greater Manchester-based Depledge Strategic Wealth Management, said: “It is probably not the best time to be launching a fund investing in investment-grade bonds because a rise in US seems imminent. However, the market changes quite quickly.
“This is not the type of asset class we are looking to have great exposure in. We are looking to build well diversified portfolios for our clients investing in absolute return funds, high-yield bonds and infrastructure. The need to prepare for both a rise and fall in the markets has come to the fore since the financial crash – hence the importance of diversification.”
Charges
AMC of 0.5 per cent for the Z share class.
Verdict
It would appear the investment environment at present is not ripe for the emergence of another fund investing in investment grade bonds. Investors have sold their positions in such bonds in their droves in recent history ahead of pending hikes in bond US interest rates – thus reducing bond values.
Mr Cunningham said that US corporate bonds have typically fared well in periods of gradual rate rises. Of course past performance is not an indicator of future results. Whether investors share this sentiment remains to be seen.
