The company has altered the portfolio so that it invests up to 55 per cent in investment-grade bonds and government bonds.
Over half the weighting in government bonds is invested in emerging markets, as OPM expects the dollar to weaken to provide decent support for this area of the market. The remainder of the government bond exposure is in UK gilts, which work well in preserv-ing capital.
The change means that the running yield on the OPM fixed-interest fund has reduced slightly, which OPM has counteracted by adding a soft commodities reverse convertible structured by Deutsche Bank. The contract runs for 18 months and is based on the price of soybeans, sugar and wheat. It offers a return of 9.3 per cent a year and the return of capital depends on the price of the worst performing commodity at the end of the term, with 25 per cent protection built in.
Deutsche Bank has structured another product for the OPM fixed-interest fund, based on the performance of three equities – Vodafone, BT and Cable & Wireless.
OPM will get a coupon of 29.9 per cent paid half-yearly and capital will be returned in full at the end of the 18-month term if the prices of the underlying equities are the same as the initial strike price. OPM is protected against falls of up to 25 per cent but will be exposed to the worst performing stock if it breaks through this barrier.
Fund manager Tony Yousefian says: “We think soft commodities are on an up trend rather than a bounce back over the next three to five years, due to demand from China along with scarcity of farmland that is putting pressure on prices. Wheat and soybeans have done well but sugar is catching up.
“Telecommunication stocks are not fully immune from the economic cycle but they are generating plenty of cash. BT is going through a different cycle from the others and we think it could do quite well.”