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Baillie emerges with bond fund

Baillie Gifford has introduced an emerging markets bond fund that will invest in a range of government, government-related bonds and corporate bonds issued mainly in local currencies.

The fund aims for growth and income and is benchmarked against the JPMorgan GBI-EM Global Diversified index. It will have an initial target yield of at least 7 per cent gross, with income paid quarterly.

The fund is managed by Gordon Brown and Sally Greig. Brown joined Baillie Gifford in 2001 and specialises in government bonds. He was previously head of fixed income at State Street Global Advisors in London. Grieg joined Baillie Gifford as a graduate in 2005 and also specialises in government bonds.

The new fund was launched to tap into Baillie Gifford’s best bond ideas, many of which have been in emerging markets. The company believes there are great opportunities in this area and wants to benefit from combining its skills in both fixed interest and emerging markets. It believes its emerging markets expertise will help to generate a great deal of in-depth information that will be useful when selecting individual bonds.

The company also feels that as emerging market bonds are a relatively new asset class, this fund will provide scope to add value through active management. However, charges are made to capital, which could reduce the growth potential of the fund.

As the fund invests in securities issued in local currencies, fluctuating exchange rates could cause the value of investments to go up and down. High volatility is a characteristic of emerging markets, so this fund also carries higher levels of risk than other bond funds.

The high potential returns and low correlation to other asset classes may be attractive to investors with an adventurous risk profile, but many investors may not feel particularly adventurous in the current environment.

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