BlueBay Asset Management has launched a fund that will invest in a variety of sub-investment grade credit and aim for an annual return of between 5-10% a year.
The firm says the BlueBay Total Return Credit Fund is not be tied to a benchmark and is able to invest in a range of loans, high yield and emerging market debt and convertibles. A committee of six credit investment staff manage the fund.
“We believe the fund fits neatly into existing portfolios enabling investors to access a product that can outperform government bonds, but without inherent equity risk,” says Mark Poole, chief investment officer.
Sub-investment grade bonds have generally performed better than government bonds in recent months, which may give encourage inflows to the new product. European high yield bond funds tracked by ratings agency Fitch Ratings were up 3.4% in the year to October 18, compared with dollar-denominated investment grade funds which were down 5.4% in the same period.
However, Fitch warns that both investment grade and high yield bonds are vulnerable if the US Federal Reserve begins tapering its asset purchases.
“Redemption risk is particularly acute for large high yield retail funds, which provide daily liquidity and, in certain cases, own a substantial portion of select issuers,” warns the agency.
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