The Jupiter strategic bond fund aims for a high level of income with the potential for capital growth. It has a target yield of 7 per cent and will typically have 60 holdings, with a bias towards Europe.
At least 20 per cent of the portfolio will be invested in high-yield bonds but it will have the flexibility to invest in other areas such as investment grade bonds, government bonds, preference shares and convertible bonds. At launch, 60 per cent of the portfolio will go into investment grade bonds with 40 per cent in high yield bonds.
Fund manager Ariel Bezalel has over 10 years experience working in credit markets at Jupiter. He also manages the fixed interest components of the Jupiter global managed, Jupiter high income and the Jupiter monthly income funds.
Bezalel will looks for bonds that offer good value for their levels of risk and reward. He will combine top down and bottom up analysis to find companies with quality management teams and robust business models, He will meet the companies issuing the bonds and research them with the help of credit analyst Rhys Petheram, a former specialist at credit ratings agency Moody’s.
A macro view on issues such as inflation and interest rate outlooks will also shape the portfolio. Bezalel likes robust business models and competent management teams.
Bezalel will initially focus on investment grade bonds issued by big European and US banks, with about a third of the portfolio held in high quality financials. He believes that banks will need to raise further capital through rights and bond issues. He expects tighter regulation, greater transparency and further consolidation in this sector, which he feels is good for the bond market.
This fund’s flexibility is its key attraction. It can take advantage of the market’s overly pessimistic view of default risk for investment-grade bonds, which has brought about attractive rewards to investors for the risks they are taking above gilts. It can also switch into other areas of the market if they start to look better value.
However, high-yield bonds must always be represented in this portfolio and they have a higher risk of capital erosion because the likelihood of default is higher. They are necessary to boost the yield, but changing market conditions and interest rate levels can have a bigger impact on the values of high yielding bonds than on other bonds.