Harvey says if market conditions remain as they are, the high-yield bond fund will be launched with a far shorter duration than the 3.7 years of its benchmark, the Bank of America Merrill Lynch non-investment grade (BB-B) index.
To achieve this, it will hold as much as 20% in floating rate notes.
Harvey (pictured) says: “Global bond yields are at their lowest in history, well below nominal growth, while central banks print money.
“Those BB-rated bonds that have a close relationship with Bunds may suffer from a reversal in global bond yields.” (article continues below)
The Dublin-domiciled fund, which is awaiting regulatory approval, will invest in lower-rated companies predominantly in Britain and western Europe, with up to 20% outside these regions. All overseas investment will be hedged back to sterling.
While Harvey’s existing portfolio, the £703m Strategic Bond fund, invests 40-60% in high yield, the High Income fund will invest between 60% and 110% in the sector.
The new fund will be composed of about 70 holdings, which Harvey says will be “large positions relative to
Income from Cazenove High Income will be distributed quarterly.