Investec has launched a global total return credit open-ended investment company for UK clients in response to UK investors’ dual requirements for yield enhancement and capital preservation.
JLT Investment Solutions will be the seed investor in the fund, which aims to get the best investment opportunities across the global credit universe, creating a diversified portfolio intended to be high-yielding yet comparatively defensive, with low volatility and low sensitivity to interest rates.
The fund is a sterling-based UK domiciled replica of the Sicav which launched for global clients in June 2017.
Investec said it will use a dynamic multi-asset credit investment process, comparable to the investment strategy run by its co-managers Jeff Boswell and Garland Hansmann, which has returned 8 per cent annualised since inception.
The fund will sit in the IA Strategic Bond sector and will target a total return in excess of three-month GBP Libor plus 4 percentage points a year over a full credit cycle (gross of fees), with an expected volatility of 5 per cent to 7 per cent each year.
Investec said by implementing a rigorous risk-management process, it has the potential to deliver higher yields at a similar risk level to typical income funds, including strategic bond funds.
David Aird, managing director, UK client group at Investec Asset Management, said: “As traditional fixed income continues to fail to deliver meaningful returns, investors should protect against the double whammy of persistent low yields coupled with the potential impact of rising rates. Many UK clients are wising up to the fact that government bonds could generate severe losses in this environment, and are seeking an alternative to, for example, strategic bond funds.
“In a rising rate environment, corporate credit has the ability to offer reduced interest rate sensitivity and attractive yields, in the hands of experienced and knowledgeable managers.
“With a demonstrable long-term track record of jointly managing comparable investment strategies, Mr Boswell and Mr Hansmann, supported by the firm’s globally integrated credit team, aim to provide investors with an attractive total return generated principally from credit spread and largely independent of interest rate movements.”
Andrew Wilson chief investment officer at Lockhart Capital Management, said: “Do investors need another option in the Strategic Bond arena? I suppose there is always room if it is well managed and keenly priced.
“This offering is based on the existing SICAV, which has been okay, but no better than okay. The premise is sensible, in that a global, flexible, diversified and total return approach to bond investing gives the opportunity for consistency and a better outcome than pure bond beta at this point. However, it does really hinge on whether the managers do a good job, and whether it is competitively priced versus other similar solutions, which will often have longer track records.
“There is risk in the fact that it will hold relatively low-quality bonds, which can become increasingly correlated to equities when those are in bear market conditions. The downside to avoiding low-yielding government bonds is that you also miss their quality just when you might need it the most.