Investment policy and strategy
Core investment: At least 70% ofthe fund is invested in high yield floating rate notes (FRNs) issued by companies or governments from anywhere in the world and denominated in any currency. The FRNs are held directly and indirectly through derivatives combined with physical bonds. The fund also invests in asset-backed securities.
Other investment: The fund also holds cash or assets that can be turned quickly into cash.
Use of derivatives: The fund invests directly and indirectly via derivatives. Derivatives may also be used to manage risks and reduce costs, as well as to offset the impact of currency exposures arising from the fund’s non-US dollar investments. For more information on the types of bonds held and derivatives used, please refer to the Prospectus.
Strategy in brief: The fund is designed to provide income while minimising the negative impact of rising interest rates by investing mainly in FRNs. The fund focuses on bonds issued by companies with below investment grade credit ratings, which typically pay higher levels of interest to compensate investors for the greater risk of default. The investment process of the fund is based on the bottom-up analysis of individual bond issues whilst remaining aware of macroeconomics developments.
Spreading investments across issuers, industries and countries is an essential element of the fund’s strategy and the investment manager is assisted in the selection of individual bonds by an in-house team of credit analysts.
Performance comparator: The fund is actively managed. The BofA Merrill Lynch Global Floating Rate High Yield Index (3% constrained) USD Hedged is a point of reference against which the performance of the fund may be measured.
Asset-backed securities: Bonds backed by assets that produce cashflows, such as mortgage loans, credit card receivables and auto loans.
Bonds: Loans to governments and companies that pay interest.
Derivatives: Financial contracts whose value is derived from other assets.
Floating rate notes: A type of bond whose interest payments, or coupons, are adjusted in line with movements in interest rates.
High yield/Below investment grade bonds: Bonds issued by companies considered to be riskier and therefore generally paying a higher level of interest.
Risks associated with the fund
The value and income from the fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested.
Investments in bonds are affected by interest rates, inflation and credit ratings. It is possible that bond issuers will not pay interest or return the capital. All of these events can reduce the value of bonds held by the fund.
High yield bonds usually carry greater risk that the bond issuers may not be able to pay interest or return the capital.
The fund is exposed to different currencies. Derivatives are used to minimise, but may not always eliminate, the impact of movements in currency exchange rates.
The hedging process seeks to minimise, but cannot eliminate, the effect of movements in exchange rates on the performance of the hedged share class. Hedging also limits the ability to gain from favourable movements in exchange rates.
In exceptional circumstances where assets cannot be fairly valued, or have to be sold at a large discount to raise cash, we may temporarily suspend the fund in the best interest of all investors.
The fund could lose money if a counterparty with which it does business becomes unwilling or unable to repay money owed to the fund.
Further details of the risks that apply to the fund can be found in the fund's Prospectus.
The Fund allows for the extensive use of derivatives.