According to Bowie, the fund has as its target Libor plus 250 basis points and, importantly, it will have a volatility cap. The cap is yet to be determined but, Bowie says it will be “significantly lower than many funds on the market”.
“Many investors are looking at where we are in this market and saying, I can accept more modest returns as long as the volatility stays low,” he says, adding: “ That is what the fund aims to do.”
According to Bowie, the fund will be positioned within the absolute return fund, but is not an absolute return product because its focus is not to guarantee an absolute return. Rather, he says, “We are managing for a fixed level of volatility”.
And, he adds: “We think rates have hit bottom, while yields are at or close to all-time lows. On a medium term outlook, there are a lot of risks out there, which is why we feel that it is important to focus on the volatility.”
At the moment, Bowie is in the process of building an efficient frontier for the portfolio and says, he is currently focused on good quality corporate credit at the shorter end of the yield curve (up to about five years) as that is where he believes the sweet spot is for both return and volatility.
Over time, he says, the goal is to build out a suite of these products that look to target higher levels of return and invest in sexier parts of the market, but adds that a 250 basis point product was a good place to start as it is a sensible level of return that allows the group to focus on good companies.
The group is also planning to launch another fund for Bowie, a more vanilla UK corporate bond fund that will fall into the IMA corporate bond sector and as a result will invest at least 80% in investment grade bonds hedged to sterling.
