MG to launch new floating rate note fund

The open-ended fund is being launched to take advantage of the rising interest rate environment expected in the near future. “The debate now is not if rates are going to rise in the US and UK but when and how far,” Tomlins said. “The fund aims to provide a natural hedge against these rising rates,” he added.

A return of EURIBOR +3-4% per annum is being targeted and it is expected to deliver lower volatility than high yield bond funds. Tomlins said he considers the fund to be unique in the European retail market.

The fund will be US dollar based and also have British pound, Euro and Swiss Franc hedged share classes.

Around 75%-80% of the fund’s value will be invested in global high yield floating rate notes, a $43.9 billion market. The remainder will be invested in a mix of credit default swaps and interest rate swaps, Tomlins said.

As talk increases that it may be time for wealth managers to add defensive assets to portfolios, Tomlins says the new fund is a good way to meet that requirement.

“The fund strips out interest rate volatility and currency risk for investors,” he said. It will buy FRN’s which sit at the top end of the capital structure so provide additional security relative to high yield bonds,” he added.

Tomlins joined M&G in 2011 to manage its European High Yield Bond fund and was also appointed co-manager on the Global High Yield Bond Fund in January 2014. He will continue in both these roles alongside managing the new fund.