Stephen Snowden’s recent move to Artemis from Kames triggered the launch of a new suite of bond funds by Artemis.
This fund, with an absolute return mandate, aims to deliver a consistent 2.5 per cent above the Bank of England base rate, after fees, over three years, on an annualised basis.
The team look to achieve their goals by exploiting their stockpicking expertise and capitalising on their views about the market.
The fund will employ three strategies in this actively managed fund.
Firstly, the team have a carry strategy where they look to invest in a global portfolio of investment grade corporate bonds and aim to generate a predictable return over the medium term.
Alongside this they look to boost returns through credit selection, taking the team’s highest-conviction ideas on which investments they think will rise or fall in value over a set period.
This strategy will combine long positions with shorts (selling bonds they do not own).
In addition, to exploit their views, the team will use pairs trading, where one investment goes up, while a similar, and usually correlated, position goes down.
They short the former and go long of the latter in expectation that they will return to similar valuations.
Finally, the team looks to have a rates strategy, which will invest to reflect their expectations of movements in inflation, interest rates and the value of global government bonds. Again the team will use derivatives to take long and short positions to benefit.
This is a ‘go anywhere’ fund and it can invest globally and across currencies. However, the fund will be limited with up to 40 per cent exposure to emerging market debt and high-yield issues.
There is also a limit of 10 per cent in unrated bonds. The ongoing charge, at 0.40 per cent looks reasonable and it is good to see there are no performance fees. As such, I would expect the fund charge to come in below the average for the sector.
While the team’s outlook for 2020 was largely positive, particularly in the corporate bond market, recent events will mean a reassessment of their views.
However, the ability to combine long and short ideas means the fund is flexible and it will be managed on an active basis so Mr Snowden and the team will be able to adjust the portfolio to reflect market conditions as they evolve.
A 2.5 per cent return above the BoE base rate may not seem much, especially when central banks are cutting interest rates, but in a world where government bond yields have been tumbling and even 10-year US treasuries fell below 0.5 per cent, such a yield will look attractive to investors.
In the current market conditions, having an experienced manager and established team of analysts managing your bond exposure is essential, and for investors looking to get exposure to the bond market when yields are so low, an absolute return strategy makes a lot of sense.