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Monument being used to cut credit risk and volatility

The distributor of Twenty Four Asset Management’s monument bond fund says multi-managers have been using the fund to reduce volatility and credit risk in their portfolios.

Gemini Investment Management managing director Stuart Alexander says the fund, which has built up more than £100m in assets since launch last August, can increase the credit quality in a multi-manager portfolio. It invests in residential mortgage-backed securities, which are bonds that are issued to finance a bundle of residential mortgages.

Alexander says that, at launch, people mistakenly associated the fund with the sub-prime markets in the US but the European and Australian RMBS in which it invests are significantly different and of higher quality. The majority of the portfolio comprises AAA-rated securities which will typically be hit by losses only if a property is repossessed and sold for less than the mortgage.

Multi-managers including Architas, F&C, Insight Investment and Premier have recently invested in the fund.

Alexander says: “One reason that multi-managers are investing is to increase their credit quality. The RMBS are AAA or AA-rated and linked to definite return, as the mortgage will be paid back. The fund provides a level of income stability and can reduce volatility in portfolios by reducing credit risk and providing consistency of return that is better than cash.”


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