Threadneedle is preparing to add wider powers to its Strategic Bond fund, giving it the ability to invest in a range of derivatives.
The proposals, which are subject to shareholder and FSA approval, will see the fund able to hold a wider range of sophisticated instruments.
The £411m fund, managed by Barrie Whitman, was launched in 2003. It invests across UK and European bond markets, holding both investment grade and sub-investment grade credit.
Gary Collins, the group’s head of UK wholesale, says the advent of Ucits III has meant fund managers have more investment options.
“We have a range of bond funds including UK Corporate Bond, High Yield Bond, and Credit Opportunities which is an Ucits III absolute return credit fund. Strategic Bond was one of the first strategic fixed income funds launched.
“At the time it was considered revolutionary as it flexed between high yield and investment grade credit,” he says.
“But the market has moved on, and Ucits means there are now more tools in the box.”
The primary reason for expanding the fund’s capabilities is so Whitman will have the option to use credit default swaps (CDSs).
“The fund will be able to use CDS crossover in the same way Credit Opportunities can use wider powers. We will be able to trade CDSs, which we cannot at the moment,” Collins says.
However, he emphasises Whitman intends to use derivatives sparingly.
“This is not an absolute return fund, it is still a beta one fund for credit [meaning the portfolio will move with the market], whereas Credit Opportunities has an absolute return mandate,” he adds.
The fund’s investment objective and the way it is managed will not change, the group says.
Threadneedle is currently notifying wrap platforms of the proposed changes to the fund, and will soon be writing to shareholders.
