The fund will aim for a total return, comprising income and growth, of 10 per cent a year by investing around 80 per cent in a global portfolio of high-yield bonds, with the remainder in investment-grade bonds.
The fund is managed by Thames River’s global credit team, headed by Stephen Drew and Mehrdad Noorani, and will contain around 40 holdings.. The team will be unconstrained by any benchmark restrictions and will find the best high-yield opportunities while avoiding too much exposure to issuers, industries, countries and markets. It is expected that the fund will hold 70 per cent in developed markets and 30 per cent in emerging markets.
The investment team will take a bottom-up approach with a bias towards bond issuers that have good trading liquidity and combine this with top-down research. There is a six-step investment process that involves assessing the broad investment universe, identifying investment themes by looking at how current economic conditions and any changes could impact on different regions. Credit analysis and technical analysis is then followed by an assessment of risk and reward for any given price targets and a stop loss level at which a holding will normally be sold. Finally, the size of each position is determined.
The fund also has a macro hedging strategy, where derivatives are used to protect capital against unexpected macro and stock specific events. This strategy also aims to dampen the downside effect in more normal market sell-offs.
Improvements in the global economy and rising confidence among businesses and consumers are fuelling mergers & acquisitions and private equity activity. This is positive for the high-yield market, which has shown resilience during recent events in Japan and the Middle East at a time when some commentators were predicting a correction. The potential for rising interest rates is still a concern but Thames River’s macro hedging strategy could help, providing it works as intended.