The firm has pitched its dynamic bond fund, which is distributed by Gemini Investment Management, as the solution to the difficulty in picking a bond fund when the easy returns have already been made.
The fund aims for income and growth, which it will achieve by investing in different areas of the fixed-income market in line with changing economic conditions. It will also make use of the synthetic shorting techniques allowed under the Ucits III rules and has an initial target distribution yield of 7 per cent.
The firm distinguishes the fund from other strategic bond funds that have similar aims by focusing on liquidity and high quality asset-backed securities. The firm believes that to be truly dynamic, the portfolio must be tradable at all times. Holding securities that are very liquid allows the manager to make tactical changes when interest rates and foreign exchange rates move. Twenty Four believes many do not actively manage interest rate and foreign exchange risk in this way because they are seen as a by-product of the portfolio positions.
Twenty Four managing partner Mark Holman says that in the credit crunch, many managers were focusing on yield but experienced losses because they were left with illiquid positions when market liquidity dried up. He says Twenty Four prefers to give up some yield to retain flexibility, as more consistent returns can be produced this way-over the long term.
High quality asset-backed securities are viewed by Twenty Four as the most attractive sector and it believes its in-depth understanding of this area also distinguishes it from the competition. The firm’s existing monument bond fund, launched last August, focuses on residential mortgage-backed securities in Europe and Australia.
A flexible investment mandate is attractive in the current economic climate and some advisers may prefer to hand asset allocation decisions within fixed income markets to a specialist investment manager rather than doing it themselves.
However, the success of all strategic or dynamic bond funds rests with the manager’s ability to get in and out of each area of the fixed interest market at the right time. Twenty Four’s focus on liquidity should help, but competition could come from M&G, Legal & General, Aegon and Invesco Perpetual.