We have adopted a different approach to sub-categorisation of fixed interest funds due to the nature of the asset class and also the fact that the IMA and ABI sectors are sometimes helpful (e.g. UK Gilt, UK Index-Linked, £ Corporate Bond) and sometimes less so (e.g. £ High Yield, £ Strategic Bond and Global Bond). We classify funds in terms of “best fit” according to their investment universes as follows:
Investment Type
Sovereign – A fund which invests almost exclusively in highly-rated sovereign debt.
Investment Grade – A fund which invests predominantly in investment grade corporate debt. These funds may also invest in sovereign debt and there may be some latitude at the margin to invest in high yield debt.
Investment Grade Bias – A fund which invests in a combination of investment grade and high yield debt, but which has a structural bias to investment grade.
Strategic – A fund which invests in sovereign, investment grade and high yield debt with no structural bias towards any and where the fund manager is free to asset allocate across all three.
Mixed Assets – A fund which invests predominantly in fixed income securities, but may also invest in equities. Such funds may also invest in hybrid securities such as convertibles and preference shares.
High Yield Bias - A fund which invests in a combination of investment grade and high yield debt, but which has a structural bias to high yield debt.
High Yield – A fund which invests predominantly in high yield debt.
Absolute Return – A fund whose performance objective is to beat cash (LIBID/LIBOR) by a defined amount. Such funds will use a range of instruments, usually permitted under UCITS III, including interest rate swaps, credit default swaps and other derivatives in addition to investing in bonds and cash in order to pursue their goals.
Specialist – by definition, Specialist funds are likely to be specialist and not core in nature. Thus is a heterogeneous grouping as it encompasses funds that adopt a wide range of different approaches. They are often managed with little or no reference to the accepted main market indices and peer group and therefore performance can differ significantly from these.