The new Ucits III rules are likely to see a new raft of products which can take advantage of the extra investment opportunities.
One such fund is the new target return fund from Credit Suisse. This is a fixed-interest fund which uses a “multi-strategy” approach to try and obtain Libor plus 2 per cent.
These fixed-interest assets include cash, investment-grade, high-yield, emerging market debt, government bonds, money market and European debt.
Although this fund has an outperformance mandate. Its primary function is to preserve capital. In difficult climates, it will move between the various fixed-interest asset classes to achieve an absolute return. This is highlighted by the fact that in July 2003 – the worst month for fixed interest in recent times – the offshore fund was still positive.
Although not at the forefront of UK fund strategists for fixed income, Credit Suisse is highly regarded in Europe and has sold over £1.5bn of this fund. The team run in excess of £41bn of fixed interest with a good three-year track record.
This is an active fund with duration between zero to four years. They have an asset allocation meeting once a month and this is a major part of the fund.
Although equities are excluded, access to “equity-like” performance is added by convertibles which give similar upside potential with little of the downside risk.
Fundamentally, this fund will always have an average credit of investment grade and has the ability to go almost 100 per cent cash in times of extreme market conditions.
Darius McDermott is managing director of Chelsea Financial Services