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Investec looks to investment-grade bonds

Investec Asset Management has created the GSF investment grade corporate bond fund by changing the name and objective of its dollar denominated high income bond fund.

The new Luxemburg-based fund will follow the investment process of the UK- domicilede sterling bond fund, which invests mainly in investment-grade bonds.

Investec believes investment grade corprate bonds are likely to outperfom gilts because last year’s indiscriminate sell-off has left them trading at unusually distressed yield levels.

Following last year’s dramatic and indiscriminate sell-off, we believe investment grade corporate bonds stand out as showing exceptional value, over-compensating investors for the risk of potential default and delivering superior risk-adjusted returns.

The new fund will hold at least 90 per cent of its assets in a portfolio of global investment grade bonds, including emerging markets. It will have 60 to 100 holdings which will have a minimum credit rating of BB.

Bonds will be selected using a combination of top-down and bottom-up analysis. They will not be based on benchmark weightings, but will be selected if there are good reasons for holding them and if the valuation represents a good opportunity.

The fund will be managed by Investec co-head of global fixed income, John Stopford. He joined Guinness Flight, which was merged with Investec, in 1993. He has also worked for Mitsui Trust Asset Management.

Stopford will be supported by Investec’s global fixed income team, which includes 12 credit specialists. The team will analyse bonds across sectors and produce a list of recommendations which are debated at a weekly meeting.
Gilt yields have fallen as a result of quantitative easing by the Bank of England and some investors may be looking to corporate bonds for a higher level of income. It is possible to get higher yields from bonds issued by companies which have a low risk of default because the market has priced in a pessimistic view of potential defaults.

The perception that a company could default, even if it does not, could have a negative affect on the capital value of Investec’s fund but this is not the case with income, which is affected only by actual defaults.

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