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Is it possible to make a positive return,

regardless of market conditions? This seems a tricky proposition, particularly when you are investing in the bond market which has a big question mark hanging over it at the moment.

However, UBS has offered a strong case with its absolute return bond fund. It is targeting a return of base rate plus 2.15 per cent but with a volatility that is lower than gilts.

This is partially achieved via a diversified portfolio and it will invest in a range of global fixed-income assets of all classes – government bonds, corporate bonds, mortgage-backed securities, high-yield bonds and emerging market debt, with at least 60 per cent in investment-grade.

Another element differentiates this fund and enables it to pronounce itself absolute return, namely its use of bond futures. Simply put, in a traditional bond fund, interest rate inc-reases are detrimental to the capital value of bonds but in this fund, government bond futures enable UBS to mitigate this risk. By selling government bonds when interest rates are likely to rise, value can be added to the portfolio.

Further value is added by taking a view on currencies. Up to 20 per cent can be exposed to non-sterling currencies to boost performance, with the remainder hedged back to sterling.

UBS has considerable fixed-income resources, with 120 investment professionals on a global basis. This resource plus a team of eight portfolio managers, one from each discipline, helps to construct the fund’s portfolio.

Darius McDermott is managing director of Chelsea Financial Services


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