Threadneedle Investments is making its UK corporate bond fund available to the IFA market by adding a retail share class to the existing institutional share class.
The fund aims to deliver income and capital growth by investing in investment-grade corporate bonds across a range of sectors. This makes it lower risk than some bond funds that use high-yielding junk bonds to chase high target yields. However, the lower risks of this fund are matched by lower returns, with a current yield of around 5.8 per cent.
Ted Bacon, the fund manager, will not be driven by a sector approach when selecting corporate bonds. However, he will draw heavily on credit research to identify anomalies that provide attractive returns in the short term. One example of this is travel companies that have been negatively affected by the terrorist attacks in the US on September 11. Some travel companies may not have been directly affected by these events, but would have been downgraded and undervalued.
Falling interest rates have made corporate bond funds look attractive to investors who are not earning much interest on their building society accounts and to those who are concerned about the performance of stocks and shares during the recent economic uncertainty.
This fund is pitched at the lower end of the risk spectrum because it concentrates on investment-grade bonds. However, when stockmarkets pick up, this could lead to a fall in bond prices as some investors move from bonds back into stocks and shares.
According to Standard & Poor's, the institutional share class of the UK corporate bond fund is ranked 31 out of 56 funds based on £1,000 invested on a bid-to-bid basis with net income reinvested over three years to November 26, 2001.