Cazenove’s Peter Harvey plans to be “significantly underweight duration” in the new High Income fund, which is slated for launch next month.
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.