Type: Unit trust
Aim: Growth by investing in bonds, equities and derivatives
Minimum investment: Lump sum £1,000, monthly £50
Investment split: 65% bonds, 25% derivatives, 10% equities
Isa link: Yes
Pep transfers: Yes
Charges: Initial 4%, annual 1.25%
Commission: Initial 3%, renewal 0.5%
Tel: 020 7506 6500
This fund aims for income and growth to provide a total return of 2.5 per cent above the iBoxx non-gilts index. It will invest in bonds, some equities and derivatives such as contracts for difference.
BestInvest Brokers head of communications Justin Modray says: “The appeal of this fund is consistently attractive returns, provided it delivers what it says on the tin – iBoxx Sterling Non-Gilts Index plus 2.5 per cent a year. The managers aim to achieve this using a blend of bonds, credit/duration derivatives and equities.”
Modray believes the key is whether the managers can actually deliver, as the target return funds launched to date have almost all universally failed in this respect.
“I think this fund stands a better chance of succeeding than the others we’ve seen thanks to a combination of manager ability, reasonable charges and a realistic target. The equity exposure of around 10 per cent could provide a nice kicker, especially as the managers may write call options to generate additional income.”
Modray points out that no guarantee this fund will work but I think the calibre of the RLAM fixed interest team, including their equities experience, and its strategy means this fund is worth taking seriously.
Asked what he dislikes about this fund, Modray says: “The lack of a proven track record using this strategy means a small leap of faith in the team’s abilities. The initial charge is also steep for investors who don’t use a discount broker.”
Modray believes the main competition will come from other target return bond funds in the market such as Baring directional global Bond, Credit Suisse target return, Nationwide target return, Threadneedle absolute return bond and UBS absolute return bond funds.
He concludes: “Target return funds are suffering from an increasingly bad reputation for failing to hit their targets. I hope RLAM’s attempt is a launch that will buck this depressing trend.
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Average