The Dublin-domiciled fund will aim to produce higher returns than cash without taking on excessive risk and is targeted towards investors with a one to three – year investment horizon. Its estimated gross income yield at launch is 3.7 per cent after charges.
The company believs that short-dated investment-grade corporate bonds will appeal to such investors against the backdrop of low interest rates. It says conventional bond funds tend to comprise longer duration bonds, which can be risky as more can happen to interest rates the the further away from the maturity date. Some bond funds also invest in lower-grade corporate bonds which carry an increased risk of company defaults and so are unattractive to more cuatious investors.
The fund is managed by Ian Kenny, a member of the in-house fixed interest team led by Chris Lynas. Kenny joined Smith & Williamson in 1997 as an institutional fund accountant and will be assisted by Lynas in running this fund. Lynas has managed the Smith & Williamson fixed interest trust since 1995 and also runs the company’s absolute return fund.
Kenny and Lynas will follow tight investment guidelines to ensure the portfolio is not overly exposed to any one issuer and will invest in bonds with a duration of up to six years. They can invest up to five per cent in a single issuer, but will initially invest only up to 2.5 per cent. The portfolio can also invest up to 100 per cent in cash, but this will initially comprise just 2 per cent.
The bulk of the initail portfolio will comprise sterling denominated corpoarte bonds and dollar or euro denominated bonds hedge back into sterling.
Corporate bond funds have recently fallen back in favour among advisers and their clients. This fund provides more choice in allowing them to focus on a lower-risk part of the market, which they cannot do elsewhere.
However, the level of income it can generate from its lower-risk strategy may be unappealing when interest rates start to rise.