View more on these topics

Alliance Trust ponders strategic bond fund

Rod Davidson
Rod Davidson

Alliance Trust Asset Management will probably launch a strategic bond fund and cap the size of its monthly income bond fund at £1 bn, according to its head of fixed income.

Rod Davidson says he considered launching a fund for the IMA’s £ Strategic Bond sector when he joined Alliance Trust last year.

However, he was uncomfortable at the time with valuations in high yield debt, to which sterling strategic bond funds typically allocate part of their portfolios.Davidson says he will also most probably cap the £205m monthly income bond fund that he helped launch in June last year into the £ Corporate Bond sector.

Davidson observes that a large fund can sometimes find it difficult to manoeuvre in the markets and may become subject to excessive attention from its parent company. “It starts becoming part of the corporate agenda,” he says.

The fund has gained just 1 per cent between its inception and November 1, compared with an average of 7.3 per cent for the £ Corporate Bond sector and 9.8 per cent for the fund’s iBoxx £ Corporate 5-15-year bond benchmark.

The duration of the average bond in the portfolio is 6.3 years, which means the fund will outperform if there is a risk of monetary policy tightening. Davidson also used gilt futures to reduce the duration of the fund as a whole to 3.9 years.

Despite high inflation, however, British monetary policy has recently loosened owing to the difficult economic environment.

As a result, Davidson remains cautious and has moved 5 per cent of the fund from cash and gilts into bonds in defensive industries such as utilities and tobacco.

Nevertheless, Davidson adds that he has invested a little more of the ­portfolio in high yield debt off the back of extremely low valuations in the ­sector.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm