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Ingenious idea for bond fund

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

The company was established in 1998 as the asset management arm of Ingenious Media, a group of five companies which specialise in the media and entertainment sector. It has three other funds, a UK equity fund, cash fund and fund of hedge funds.

The directional 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.

Newton Investment Management investment leader, fixed income, Stewart Cowley will act as investment adviser to the fund He joined Newton, where he manages the International Bond Fund in 2000 and has more than 11 years’ experience in fixed income.

Under Ucits III, fund managers have fewer restrictions on their use of derivatives, which enables this 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 Baring 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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