Type: Offshore Oeic
Aim: Income and growth by investing mainly in a global portfolio of high-yielding corporate bonds
Minimum investment: Lump sum £10,000, $10,000, euro 10,000
Investment split: 80% high-yielding corporate bonds, 20% investment-grade bonds
Place of registration: Dublin
Charges: Initial up to 5%, annual 1.5%, performance fee 15%
Commission: Subject to negotiation
Tel: 020 7360 3550
The Thames River global high yield fund is a Ucits III absolute return bond fund. It aims for a total return, comprising income and growth, of 10 per cent a year by investing around 80 per cent in a global portfolio of high-yield bonds, with the remainder in investment-grade bonds. It will contain around 40 holdings, comprising around 70 per cent in developed markets and 30 per cent in emerging markets.
The fund also has a macro hedging strategy, where derivatives are used to protect capital against unexpected macro and stock specific events. This strategy also aims to dampen the downside effect in more normal market sell-offs.
Looking at the ways in which the fund could be useful for advisers and their clients, Hargreaves Lansdown senior analyst Meera Patel says: “In an environment of rising inflation, a high-yield bond fund such as this can offer some insulation against rising interest rates. This is because high yield bonds are less sensitive to interest rates compared with investment -grade bonds.” She adds that it should enable corporate bond investors to benefit from an attractive level of income and the potential for capital growth as the economic recovery gathers pace.
“The fund will aim to deliver a yield of 6 to 8 per cent each year after fees, which, in a low interest rate environment, should be attractive to many investors needing income. But it is worth pointing out this yield will come with risk,” says Patel.
She points out that the focus is on high-yield bonds, and that the fund will be diversified geographically, with exposure to the developed markets as well as emerging markets. “It will also be diversified by industries to remove too much concentration from any one particular area. The managers will be able to limit the downside by using a hedging strategy, but of course this will depend on the skills of the managers,” says Patel. She feels that the fund’s suitability to market is good, but only for more sophisticated investors.
Considering the potential drawbacks of the fund Patel says: “Even though there is a hedging strategy in place to help limit the downside, this will still be considered a high-risk fund, given that high-yield bonds are more volatile and are historically known to have a higher default rates than investment grade bonds. The emerging market exposure will add an additional layer of risk,” she says.
Patel reiterates her earlier point that the hedging technique will be dependent on the skills of the managers. “It remains to be seen whether they will be successful in offering insulation during periods of falling markets,” she says.
Patel also takes issue with the performance fee applied to the fund. “The fund has a performance fee with a very low hurdle – 3-month Euro Libor. If the group would like to apply a performance fee, it should have a more challenging hurdle rate on top of the high water market,” says Patel. She adds that on the whole, Hargreaves Lansdown does not like performance fees.
Highlighting the main competition the fund is likely to face, Patel says: “There are no like-for-like funds that invest predominantly in global high yield bonds and offer the ability to hedge that I am aware of. There are global bond funds in the Absolute Return sector but they are not comparable funds.”
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Average