Rothschild Asset Management is expanding its offshore retail fund range with the Five Arrows income fund, a Guernsey-based corporate bond fund.
The fund will invest mainly in UK corporate bonds, with smaller amounts going into European and emerging European bonds. However, it does have the flexibility to invest further afield. Income will be paid quarterly and the target yield is 7.4 per cent a year.
Danny Fox, who joined Rothschild in February this year after eight years at Royal & SunAlliance Investment Management, will run the fund. He will draw on the resources of Rothschild's credit research team when selecting bonds. The portfolio is likely to consist of a large percentage of bonds graded at A- and above, but Fox is unlikely to select bonds with ratings below BBB because of their increased risk of default.
Corporate bonds funds have been popular with income seeking investors in recent months as volatile equity markets has lead to a reduction in dividend payments and low interest rates have made building society accounts unattractive for those needing high income. However, as this fund will not invest in bonds at the lower end of the credit spectrum, the difficulty will be finding the bonds to sustain the income yield.
According to Standard & Poor's, the Rothschild Five Arrows IP GI fixed interest international fund is ranked 218 out of 283 funds based on £1,000 invested on a bid-to-bid basis with gross income reinvested over three years to April 22, 2002.