Roger Webb, co-manager of the fund with Luke Hickmore, said that the structure of the fund means it is “inappropriate” to be included as it currently is in the IMA Corporate Bond sector.
“The fund is either at the very top or the very bottom of the corporate bond sector depending on the gilt market. It is at the top when government bond yields are rising as we have no exposure at all to government bonds; conversely the fund falls as gilt yields fall,” he explained.
His and Hickmore’s strategy is to hedge out the gilt risk, essentially leaving Libor plus the credit spread which is what investors in the fund want, he added. This means there is little to compare it with in a sector exposed to corporate bonds with no such hedge.
“People who buy this fund are those who want exposure to credit spreads as they probably manage the interest rate risk themselves,” he said.
The fund’s mandate leaves it with the flexibility move back into the IMA Corporate Bond sector though Webb said this is unlikely, particularly as the maximum duration of his fund is one year when the typical corporate bond fund has between five-and-a-half and seven years duration.
