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How OPM fixed income aims to beat a rate rise

OPM believes the nimbleness of its £41m fixed-income fund, its strategic investment mandate and its fund of funds structure gives it an edge when faced with the prospect of rising UK interest rates.

OPM sees higher rates as inevitable and says investors will need to be invested across credit markets to reduce the impact rising yields will have on their capital. It says the fund has delivered above-average yield with less volatility, partly because it can move quickly among different areas of the bond market as market conditions change.

Financial Express data shows the fund produced returns of 11.41, 27.35 and 22.65 per cent over the last one, three and five years to June 1, with volatility of 3.29, 9.8 and 8.25 per cent respectively. The IMA sterling strategic bond sector average produced returns of 8.36, 20.91 and 19.2 per cent over the same periods, with volatility of 4.88, 10.35 and 8.59 per cent respectively.

OPM says it favoured high yield because it outperformed investment-grade bonds over the last 18 months but the firm has recently been taking money out of the sector because volatility tends to hit high yield rather than investment-grade bonds.

When volatility spikes up, OPM tends to invest in reverse convertibles, which are typically based round a well traded company and behave like equities as markets rise while acting like bonds when markets fall.

Fund manager Ross Henderson says: “We have the nimbleness of active management when conditions change rapidly.

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