Legg Mason has had a verbal commitment from five funds of funds managers to invest in its new absolute return bond fund.
Fixed-interest specialist and Legg Mason subsidiary Western Asset will manage the Ucits III compliant global credit absolute return fund. The Dublin-based fund will provide fund of fund managers with the ability to benefit from falling credit markets, as well as rising markets, by using derivatives to create synthetic short positions.
Senior portfolio manager and head of non-US credit Dipankar Shewaram will aim for returns of 8 to 10 per cent a year over three-year periods. He will use credit default swaps and CDS indices to short sectors, individual securities and duration. Shewaram is confident that the Ucits III framework will not limit the fund’s ability to deliver returns.
He says: “We cannot short bonds directly so we do it through options and futures but this does not hamper the fund’s ability to produce investment returns. It still has the whole toolbox available and there is no disadvantage in not being able to achieve actual leverage.”