The Threadneedle European Short-Term High Yield Bond will focus on maturity rather than duration when managing risk, said Gaiser (pictured), who will co-manage the fund with Gareth Simmons. The pair already co-manage the European High Yield fund.
The fund will have lower interest rate sensitivity than a standard high yield fund, he said. It aims to deliver income with some capital appreciation using bottom-up credit selection.
At least 80% of the fund will be in maturities of four years or shorter and any longer maturities will be not much more than around five years, Columbia Threadneedle confirmed. Duration is initially expected to be less than two years.
Gaiser was only recently named head of high yield following Barrie Whitman’s announcement that he would retire at the end of the year.
Protection against interest rate and credit risk
The higher coupons and shorter maturities typically seen in high yield means the asset class is less sensitive to interest rates anyway, says Willis Owen head of personal investing Adrian Lowcock, who rated Columbia Threadneedle’s European high yield team highly.
However, by focusing on shorter-dated bonds the fund provides some protection against credit risk, such as in the case of a global recession, Lowcock said. “Whilst high yield are typically shorter dated anyway a fund focusing on the shortest end of the market should be able to tap into the less risky area of the high yield market, because the money is invested for a shorter time, but benefit from the higher yields on offer.”
The fund would be useful for investors wanting to access high yield despite the uncertain market environment, he added, pointing out six months ago US rates were on an upward trend, whereas now the expectation is that the Federal Reserve will cut rates as soon as this month.
The fund launch comes less than a month after Artemis unveiled a short-dated high yield fund, albeit with a global remit. The Artemis Short-Dated Global High Yield Bond Fund is managed by David Ennett and Stephen Baines, who are among a raft of defections from Kames who have joined the rival asset manager.
Short duration bond funds available to UK investors have attracted £52.8bn over the last three years despite the fact low interest rates have meant long duration funds have outperformed over that period.