Credit select and global credit provide diversification across the credit spectrum and on a global basis, with different risk profiles.
Credit select will invest mainly in investment grade corporate bonds in developed global markets. The average credit quality of holdings will be A, with around 90 per cent of the portfolio going into investment-grade bonds and up to 10 per cent in high-yield bonds with lower credit ratings.
The fund has a target yield of 4 to 5 per cent an year, paid quarterly.The priority is producing this level of income while preserving capital, but there will be some scope for capital growth.
The global credit fund has a higher risk profile than credit select, which also increases the potential returns. Global credit has a target yield of 6.5 per cent and invests mainly in corporate bonds with an average credit quality of BBB. Investment-grade bonds in developed markets will make up around 60 per cent of the portfolio, with the remainder going in to high yield and emerging market bonds. Both funds can use futures and options to preserve capital in volatile market conditions.
The funds are managed by Stephen Drew and Mehrdad Noorani, with input from Bernt Tallaksen. Drew joined Thames River in June, having previously managed a relative value credit portfolio at Tudor Capital. Noorani joined Thames River in 2005 from UFJ, where he focused on volatility strategies, while Tallaksen has spent the last 11 years at Thames River.
According to Thames River, credit is a sweet spot that should outperform as the markets return to normal. These funds will be able to take advantage of cheap valuations that have resulted from the recent sell-off.
The ability to use derivatives is useful but is a sophisticated investment strategy. The Thames River team’s previous experience in this area will be vital to the success of the new funds.