M&G has released further details on its Optimal Income fund and announced the departure of Nick Scott, manager of its £235m Asian portfolio.
As reported in Fund Strategy on November 6, Optimal Income will be run by Richard Woolnough, manager of M&G’s £1.3bn Corporate Bond and £100m Strategic Corporate Bond portfolios. The fund will be seeded with £50m at launch this week.
It will invest primarily in bonds, while taking advantage of the additional powers granted under Ucits III. At least half of the portfolio will be held in debt instruments, with no more than 20% in equities and other asset classes.
Woolnough (pictured) says the fund, which will sit in the Investment Management Association’s Other Bond sector, will use M&G’s existing research. He says: “It will allow us to express our views in a more direct manner. We spend a lot of time choosing which credits we do not want to own. We can profit by going short under the new rules.”
Woolnough says the use of equities is a departure for M&G’s fixed income team, but that he has experience in the asset class from his time at Assicurazioni Generali, an Italian insurance company he left in 1993. He adds: “There are some companies where the equity part of the structure is cheap compared with the bond part. Equities are sometimes a better way to get hold of the income stream.”
The fund will not operate within duration limits, allowing it to take an aggressive stance or behave more like cash. Woolnough expects it to perform in a “more focused and pointed manner” than the rest of the firm’s fixed income range.
He says: “You could go for gilts or investment-grade bonds, both of which are conservative. High-yield funds give more discretion to the manager and Optimal Income gives even more. The marketplace is becoming more sophisticated.”