Fund Launches Look to Gain from Rising Rates

NEWS YOU CAN USE: The investment industry has had a busy month with a range of fund launches, new options for income investors and moves to improve fund fees

Emma Simon 1 December, 2016 | 2:29PM
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Donald Trump’s victory in the US presidential race dominated newspaper headlines this month. Like Brexit the pundits were proved wrong – unlike Brexit this surprise win didn’t send shockwaves through global investment markets.

But the economic landscape has shifted with this election result; Trump’s pledge to boost spending on infrastructure has raised expectations that we could be moving towards a more inflationary period, with interest rates rising sooner that otherwise predicted.

This does not just apply to the US. As the Autumn Statement made clear, growth is forecast to be slower here and the continued weakness of sterling will push up the price of many goods and services over the next year.

This changing economic environment can be seen behind many of the announcements made by the investment industry this month: with new fund launches looking towards global markets, or to counter rising interest rate environments.

Elsewhere there have been moves to protect the interests of ordinary investors, particularly in relation to fund charges – with new savings vehicles launched and more established fund managers trying to improve transparency.

Fidelity Launches New Bond Fund

Fidelity has become the latest fund manager to launch a short-dated corporate bond fund. This new fund will be run by Sajiv Vaid and Ian Spreadbury – who also run Fidelity’s Moneybuilder Income and Extra Income funds.

This new fund will focus on sterling denominated investment grade corporate bonds that will mature within five years.

There has been increased demand for short-dated bonds from investors, with commentators saying this type of fund could be a sensible option in a rising interest rate world. Darius McDermott managing director at Chelsea Financial Services says: “If the bond bubble has finally burst then a short-dated fund will be a good diversifier in the fixed interest market. Bonds are maturing regularly in these funds, about 20% a year, so managers can use this cash flow into buying higher yielding bonds as they are launched.”

Axa Investment Managers, Aberdeen, Royal London Asset Management and Standard Life all offer similar funds.

Aviva Unveils ‘Endurance’ Fund

Aviva Investors has launched a new Global Equity Endurance Fund, to be run by manager Giles Parkinson. This will be a high conviction and low turnover fund – with the manager seeking to hold stocks for five to 10 years. This unconstrained fund is likely to have a relatively small portfolio of between 20 to 40 stocks. It has a 1.5% charge on its retail share class.

The fund is expected to invest mainly in mid-cap and larger companies which have the potential to grow over this time-frame. Aviva said it’s looking to invest in businesses with global reach that offer a diversified range of products and/ or services.

In recent years Fundsmith – another high conviction low turnover global fund has delivered outstanding performance for investors.

Schroders Launches Credit Fund

Schroders has launched a Global Credit Income Fund, which will be managed by Patrick Vogel and Michael Scott.

As the name suggests it will have a global remit and will invest in high yield credit, investment grade bonds, emerging market sovereign debt and credit as well as asset backed securities.

At the launch Schroders said the fund was aiming to deliver a "consistent and attractive income" rather than simply mirroring a set benchmark.

It said to achieve this it needed a more flexible strategy, so the investment team will have the freedom to allocate across the broad global credit universe, so they can mitigate risks and capture the best opportunities.

M&G to Close High Income Trust

M&G has announced the range of options open to investors, when it winds-up its High Income Trust in March 2017.

Subject to shareholder approval, the default options will be a switch into their £412 million M&G Extra Income fund, an open-ended fund, which is run by the same manager, Richard Hughes.

However, investors will also have the option of transferring their holdings to M&G Strategic Corporate Bond, M&G Dividend or – if they prefer to stick with a closed-end investment trust structure, JP Morgan Elect Trust (JPE).

Alternatively investors can simply cash in their holding for the net asset value, minus costs.

Money Raised to Launch “People’s Investment Trust”

Daniel Godfrey, the former head of the Investment Association has raised £100,000 via a crowd-funding campaign to launch a new low-cost investment trust. The capital was raised in just four weeks.

Unlike conventional investment trusts this will bypass the brokers and intermediaries involved in raising capital for such a launch. The online appeal asked for £20 donation from potential investors – who will be offered shares at a discount when the trust is launched.

Godfrey has said he wanted this new vehicle to have low and transparent costs – although the charging structure has yet to be revealed.

The trust will invest in a panel of fund managers chosen by Willis Towers Watson. It aims to list on the London Stock Exchange in first half of 2017.

While at the IA Godfrey pressed for more transparent charges on funds, but left after disagreements with member firms.

Launching the crowd-funding campaign he said: “It's called The People's Trust because it'll be accessible to anybody and run entirely for their benefit.

“It'll be an investment trust, which means that it will be 100% owned by its customers - hence The People’s Trust.”

New Disclosure on Fund Charges

Baillie Gifford is improving the way it discloses fund charges to investors by including for the first time an annual portfolio turnover figure on its fund factsheet.

This will give investors a better picture of how often assets are bought and sold within their retail funds – and the costs involved. The fund manager said it was not aware of any other assets managers publishing this information on their fund fact sheets.

This move follows Baillie Gifford’s decision last year to publish its own measure of how active its portfolios are, in a bid to separate the firm’s offerings from so-called ‘closet tracker’ funds that differ only negligibly from their benchmark.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Fidelity Extra Income Acc196.60 GBP-0.15Rating
Fidelity Sust MoneyBuilder Inc A-INC-GBP29.24 GBP-0.24Rating

About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk

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