JP Morgan AM has launched a Europe high yield short duration bond fund, a new Ucits fund in its Sicav range.
The fund is for investors who wish to maintain their holdings in fixed income whilst limiting exposure to rising rates and still achieving a reasonable level of income in the current low interest rate environment.
It will primarily invest in high-yield, sub-investment grade European corporate bonds with no more than five years to maturity and an effective duration that is roughly half that of the broader European high yield market.
The strategy’s aim is to provide positive yields from credit spreads whilst reducing exposure to capital losses from any rise in underlying interest rates.
The fund will rely on a bottom-up security selection process to actively manage default risk whilst seeking to deliver strong risk-adjusted returns.
It will aim to generate an annualised return of 75 to 100 basis points over and above returns of the benchmark (BofA Merrill Lynch Euro Developed Markets High Yield ex Financials 1 to 3 year) over a given credit cycle.
“With European government bond yields still near record lows, traditional bond investors are getting no buffer from interest rates due to coupons. With coupon protection non-existent, it makes sense to build some defence against duration risk into portfolios as the European Central Bank gradually recalibrates and yields potentially drift higher in Europe,” Massimo Greco, head of European Funds at JP Morgan AM, said.
“High yield offers a degree of relative protection against rising interest rates and a source of income exceeding what investors could achieve in cash,” Greco added.