Credit Suisse Asset Management has introduced the target return fund which invests in a range of fixed income assets, including government and corporate bonds, emerging European debt and convertibles.
The target return concept was piloted on an institutional mandated fund established in August 2000. The name of the new fund, which takes advantage of the Ucits III rules of mixed asset classes, refers to its explicit performance target of 2.5 per cent above the six-month Libor in all market conditions.
The fund will achieve this by blending all types of fixed income assets together using a top-down approach, with one eye on the potential returns and the other on the level of risk. It will invest mainly in investment-grade securities, with a small proportion in higher yield securities used to boost the returns when needed.
According to Credit Suisse, even in bear markets there is sufficient scope across the range of fixed income assets to produce positive returns. This fund was designed as a solution for investors who want the highest returns they can get without taking high risks in the current environment of uncertainty and stockmarket volatility.
The use of different types of fixed income asset class brings diversity to the portfolio as they often show low correlation to each other. Preservation of capital is also important so the fund can go 100 per cent in cash whenever the capital needs to be protected.
On the risk management side, each asset class has a set level for profit and loss and these levels are set monthly. There are also set parameters of how much should go into each asset class based on the current market conditions.
This fund could appeal to investors who want something more than a conventional bond fund and who like the idea of returns in all conditions without having to resort to hedge fund investments, which may be unsuitable for them. However, the drawback of this fund is that it is not currently available as an Isa or to Pep transfers because it is uncertain whether it meets the Inland Revenue rules for stocks and shares Isas. This could change once the fund's eligibility Is clarified.