Baring Asset Management's directional global bond trust is a unit trust set up to take advantage of the European directive Ucits III.
Ucits III allows fund managers of onshore funds to use mixed asset classes and go short, whereas previously shorting was only available offshore without the safety net of FSA regulation. This fund's unit trust structure means it is FSA regulated and eligible for Isas and Pep transfers, despite the ability to go short.
The fund aims to make money regardless of whether bond and currency markets are rising or falling by using a long and short strategy. It is managed by Colin Harte, BAM' s head of government bonds.
Harte joined BAM in 2000 from Norwich Union and has also worked for Gartmore and WorldInvest, which was taken over by New Star. He has more than 22 years' investment experience and has used hedge fund strategies for institutional clients. He also has experience of using derivatives for effective portfolio management in conventional unit trusts.
With this fund, Harte is targeting a return of 4 per cent above the 3-month Libor and will take long and short positions on Government bonds and money market instruments to exploit market movements. This means that a fall in one area of the market will not necessarily have a negative impact on the overall return.
This fund could be seen as a halfway house between hedge funds and conventional unit trusts due to its ability make money in all weathers, while still offering investors FSA protection. However, this is a new concept and it may take time for mainstream investors to understand the techniques used.
It may be attractive to sophisticated investors who are ready to explore new avenues when using their Isa allowance and high-net-worth investors are more comfortable investing onshore in a regulated fund than in hedge funds.