With all the focus on the interest rate cycle and the inexorable rise of rates as global central bankers fumble to deal with runaway inflation in developed markets, Hargreaves Lansdown have come to market with a new bond fund.
The Hargreaves Lansdown Global Corporate Bond fund is set to launch on 19th July. The new offering will be a fund-of-funds product, clubbing together five different managers with very different strategies.
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Bond funds have never been the most-exciting of conversation topics down the pub, but Hargreaves Lansdown is promising bells and whistles from its stable of mangers which include: RBC BlueBay Asset Management; Invesco; M&G; Morgan Stanley and; Pimco and the broker is offering a GBP1 fixed launch price if investors subscribe before midnight on 19th July.
The dream team that HL has assembled will: “offer great potential for long-term performance,” said the broker. HL’s role in the fund is as asset allocator, and the underlying managers will be free to manage their own portfolios to their own strategy. HL reserve the right to add or remove portfolio managers at their discretion.
Making lemonade
Launching a bond fund now is a shrewd move from Hargreaves Lansdown, as you might as well be making lemonade when the Bank of England and Federal reserve gives you lemons. The impact of interest rate rises will be most keenly felt by companies that through their operations are forced to borrow money. For some companies – just recovering from the aftermath of inoperation caused by Coronavirus-lockdown, and reeling from the impact that the War in Ukraine has had on fuel and commodity prices – the recent interest rate hikes will be too much to bear, and they will go to the wall. Just have a look at the problems that Cineworld LON:CINE has been beset with through having too much debt on its books. The subsequent impact on equity markets bodes for continued sluggish performance.
Balancing out equity exposure with bonds in one’s portfolio is a valuable risk diversification strategy, as it allows you to seek uncorrelated returns. Moreover, in global markets, bonds make up the rump of investments and provide income – something in a climate of suppressed pay awards is a welcome addition to the household. However, for retail investors, individual corporate bonds are mainly inaccessible.
Flexibility
Not so through a managed fund. The new HL fund will invest in bonds from high quality companies around the world through the portfolios of the managers listed above, each operating within large, well-resourced organisations to cover the wide spectrum of global bond opportunities available. The managers will be given some flexibility to shelter in gilts (or government bonds) as and when necessary, which may offer lower returns, but provide greater protection, stability and security.
To balance this out, HL will also allow the managers the discretion to invest up to 20% of their allocated capital in the high-yield end of the bond market – riskier bonds in terms of potential defaults, but offering the potential of enhanced returns.
The fund isn’t designed to be a quick hold and sell undertaking. HL recommends that investors hold the fund for a minimum of five years, benchmarking the overall fund against the ICE BoFA Global Corporate Index total return after any charges. This index measures the overall performance of Global Corporate bonds including any income they produce.
The fund pays income monthly after charges are subtracted. On GBP1000, investors can expect to pay GBP6.20 in initial charges, with a GBP4.50 ongoing annual charge and a GBP10.70 platform fee, which all-in amounts to GBP21.40 a year which will be taken out of the income the fund creates.
RBC’s strategy is to find bonds issued by good quality companies which are improving, or where other investors underappreciate their prospects and manager, Andrzej Skiba (for a bond manager) is known to be a bit more edgy and risky than most and will take high-conviction bets and push the boat out when the market is coming into and in a growth phase.
Lyndon Man of Invesco is by contrast more macro- and thematic-driven looking for issues that fit in with the team’s macroeconomic forecasting and economic themes – so it’s market first, name second for Invesco. M&G’s Ben Lord is also a macro-driven manager, but like Skiba he tries to exploit market inefficiencies and find names that the market has discounted.
Morgan Stanley’s team are willing to ride the rollercoaster, and have developed a strategy based around fear, looking for bargains when investors are scared and prices are falling. But that said are quite conservative in their approach. Pimco, which has been in the news for a number of reasons, made its fortune by being the go-to bond specialist and takes both a market-driven and company-specific approach to investment.
If you would like to be a part of the fund launch and secure the £1 launch price, you can find more information here. Minimum investment is GBP100 as a lump-sum, or GBP25 monthly as a direct debit.
