Kames Capital absolute return fund launches targeting Libor plus 2 to 3 per cent net of fees.
Jointly managed by bond managers Colin Finlayson and Stephen Snowden, the fund aims to provide investors with positive total returns over a rolling three to five year period, regardless of market conditions.
Snowden says: “We went for a range rather than a hard figure. Not all market conditions afford you the opportunity you would like. If markets were fully valued and there’s not a lot of volatility, in order to reach a higher performance target, you’d probably have to take larger positions in risk that you’re not normally comfortable with.”
Snowden adds if a shock hits the system, then you will find yourself longer risk than you intended to.
Snowden sees the fund being split equally between three modules. These are the carry module, that invests in investment grade short-dated bonds, credit module investing in corporate bonds and CDS, and government bonds module. He says that the fund will have more on the government bond side than the credit side. The Fund may invest in all types of fixed and floating rate fixed income securities and will use financial derivative to run a long/short strategy. For example, short positions may be achieved by selling futures or buying put options.
The Kames absolute return bond fund is registered in Dublin and is initially available in the UK, Ireland and Channel Islands although it will also be available to other European investors subject to regulatory approvals.
The fund is currently a short on credit. Snowden explains this position on credit in terms of his bleak outlook on the global economy.
He says: “We have a rather grim view on the world. We think the European crisis is far from solved. We have the toxic mix of too much debt and not enough growth. Asset prices will be lower before political consensus is reached.”
The parameters on the fund are carry has a minimum of 20 per cent of the portfolio, credit is a maximum of 50, a cash at a minimum of 5 per cent to give the fund liquidity and government bonds could be a maximum of 95 per cent of the portfolio. The duration is to be limited to plus or minus two and a half years.
The charges for the A class are a maximum of 5.5 per cent initial charge at 3 per cent commission and an AMC of 1.15 per cent.