Baring Asset Management (BAM) is launching a new absolute return fund with
a unit trust structure for UK investors.
The Baring Directional Global Bond Trust, being launched on 1 March 2004
(subject to regulatory approval), is taking advantage of new UCITS legislation to
offer UK investors an actively run, absolute return global bond fund that aims to
deliver returns of 4% above 3-month sterling LIBOR after charges. At current
interest rates, this equates to approximately 8% a year after charges.
Ian Pascal, Marketing Director at BAM explains the fund's shorting ability: "This
fund aims to generate positive absolute returns whichever way the bond and
currency markets move; traditional bond funds cannot do this as they are
restricted in the instruments they can use."
Pascal said: "With the Directional Global Bond Trust, if the manager believes
that the dollar will fall, for example, he can sell dollars now and buy them back
at a lower price in the future, delivering positive returns for the fund. The same
applies to the bonds that can be held within the fund. In an environment of
rising yields and concern over potential capital erosion in more traditional bond
funds, this ability can prove extremely useful."
The types of instruments that the manager will use for shorting are highly liquid
instruments traded on the major exchanges such as LIFFE, EUREX, Chicago
Board of Trade, Montreal Stock Exchange and the Sydney Futures Exchange.
Examples of the types of bond that will be traded are Long dated Gilts, US
Treasuries and Japanese Government Bonds. The fund will not be using
gearing and all short positions will be covered by cash held within the fund."
Colin Harte, the lead fund manager and BAM's Head of Government Bonds,
explains why the fund is being launched: "New legislation and economic
change offers new opportunities. Bond markets are facing more difficult
conditions with upward pressure on yields in most areas of the world leading to
negative total returns. In addition, aggressive monetary and fiscal policies being
pursued in the US, combined with a record current account deficit are likely to
generate high levels of global fixed interest volatility in the foreseeable future."
"This is therefore a new opportunity for UK fixed interest investors to diversify
globally and seek higher returns by taking advantage of the future volatility that
is expected in bond and currency markets."
Keith Wilson, Head of UK Intermediary Sales at BAM adds: "By making use of
the new legislation, declines in one or more Government bonds or currencies
can be more than compensated by the opportunities available in others. As
bonds are a core long-term holding for many investors 'Directional funds' are an
asset class we expect to see becoming increasingly important to many investors
in 2004 and beyond.
Wilson said: "We are seeing a great deal of interest in this product from a wide
range of intermediaries who see this fund as a core part of their clients' bond
portfolio. This is because it aims to achieve positive returns even when bond
markets are falling, at relatively low levels of risk."
Background Note: Baring Asset Management is one of the UK's leading
specialists in global fixed income investment with 20 years experience as a
Global Fixed Income specialist, managing GBP 10 billion across mandates
Colin Harte is responsible for managing a number of BAM's global bond
products, all of which require judgements to be made over the direction of bond,
interest rate and currency movements. He also has experience of using
derivatives within the existing unit trust regulations for the purposes of efficient
portfolio management. Harte has 22 years investment experience is a member
of the Fixed Income Management Committee and Head of Government Bonds
and Currency. He joined Baring Asset Management in 2000 as a Senior
Director of Fund Income and Currency.
The Baring Directional Global Bond Trust launches on 1 March 2004, subject to
regulatory approval, with a two-week offer period. The minimum investment is
£1,000 for accumulation units and £10,000 for income units. During the launch
period, there will be no initial charge for intermediaries.