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Change of directional

Ingenious Asset Management has set up the Ingenious directional bond fund. This is a Dublin-based Oeic which takes advantage of the greater flexibility in the use of derivatives provided by the Ucits III legislation.

The bond fund aims for growth ahead of inflation by investing globally in bond markets, including government, non-government and emerging market debt. In all cases, the bonds held are restricted to investment grade.

Under Ucits III, fund managers have fewer restrictions on their use of derivatives which enables the fund to invest in bond and interest rate futures. In effect, this means Cowley can go short, depending on his view of interest rates.

This strategy will be used to protect investors from interest rate rises which have an adverse effect on bonds and gives the fund the ability to make positive returns in falling markets. At other times, the portfolio will be run like a conventional long-only bond fund.

Baring Asset Management established a similar fund last year, the directional global bond trust, but the main difference is that the BAM fund is focused on government bonds whereas Ingenious will be looking at a range of bonds, including investment-grade corporate bonds.

Ingenious feels the “directional” approach used by both funds will become the way forward as more bond fund managers see it as a solution to the frustration they feel when interest rates rise and there is little they can do to actively manage themselves out of a negative period.

However, the Ingenious fund’s £50,000 minimum investment will exclude many retail investors in contrast with the BAM fund, which has a £1,000 minimum investment and is Isa eligible.


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