EUROPE - Julius Baer has launched a new bond fund under Luxembourg law - Euro Corporate Bond Fund - which invests in euro-denominated bonds issued by internationally active companies.
According to Baer, corporate bonds with medium to high credit ratings offer investors the prospect of better yields than government issues, while entailing only a slightly higher investment risk.
The fund’s manager is Fabien Weber.
Asked which are his favourite sectors, he said: “Financial and telecommunication.
“Within financials I would emphasise subordinated debt of retail banks because of the stability of their business and insurance companies because they are taking the right steps to reduce their dependence on the equity market and to bolster their capital base. On the other side the telecom sector is very interesting because the majority of the companies are improving their balance sheet and the trend of upgrades by the rating agencies will go further.”
Asked if, after bankruptcy scandals, it was still too risky to invest in corporate bonds, Weber said: “No, I don’t think so. What is risky is to invest only in a few corporate bonds but the Euro Corporate Bond Fund is well diversified. I see now a trend of improving credit quality because the goal of most of the companies is to reduce the excess of the past. The theme in the company boardroom is how to reduce the debt, how to generate free cash flows, and no more about expansion strategy. For me this is positive sign for the corporate bonds but not necessarily for the equity market.”
The fund generally invests in at least 70 different bonds. The weighting of top-rated bonds (AAA-AA) is kept relatively low as these have a very high correlation to government bonds and their performance is strongly susceptible to interest-rate developments. However, the fund has a larger exposure to bonds with slightly lower ratings (A-BBB), where changes in the issuer’s creditworthiness are a key performance factor.
The market for euro-denominated corporate bonds grew by 62% in 2001 alone, according to Julius Baer. Experts estimate that companies will continue to raise capital by way of bond issues as this reduces their dependence on the banks and allows them to expand their creditor base.
Benchmarked to the Merrill Lynch Corporate Bond Index, the fund’s volume as of 30 April 2003 was e76.69m.
It’s initial issue price was e100. The management fee for A/B shares is 1.05% per annum.
The fund is authorised for sale in Luxembourg, Germany, Austria, Switzerland, France and Italy.
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