The funds aim to provide returns of 4 per cent above the three-month Libor. It will take a long and short approach, allowed under the Ucits III directive, which enables it to make money regardless of whether bond and currency markets are rising or falling.
Like the sterling denominated fund which was established in March 2004, the new funds are managed by Colin Harte, BAM’ s head of government bonds and currencies. 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.
Harte 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.
These fund could be seen as a halfway house between hedge funds and long-only funds due to its ability make money in all weathers, while still offering investors FSA protection through their Dublin domicile.
Difficult conditions in bond markets could make the concept attractive to investors who need diversification away from equities but the shorting does not necessarily mean the funds will outperform their peer group.
Data from Trustnet ranks the directional global bond trust 45th out of 52 funds in the IMA global bond sector on a bid-to-bid basis with net income reinvested over six months to December 2, 2004.