Axa Investment Managers has launched a fixed-term bond fund that primarily invests in European corporate high-yield debt securities.
Called Axa IM Maturity 2023, the new fund targets companies that have "solid" business fundamentals and aims to hold securities for the full term.
It will, however, apply a strict sell discipline should the credit fundamentals of the holding deteriorate, according to the asset manager, which added that the turnover will be minimised to keep transaction costs low.
At the end of the term in 2023, the fund, which will be managed by Yves Berger, senior portfolio manager at Axa IM, will self-liquidate – all bonds will either be repaid or sold, in the absence of any defaults.
Mr Berger said: “It is almost impossible to time the market so our approach of investing with a fixed maturity aims to help clients tackle the ongoing challenge of low yields and volatile markets.
"By staying invested for the full six-year life of the fund, investors can pay less attention to the interim price movements; the fund is designed to be held until the maturity date."
An early redemptions levy of 2 per cent applies.
The announcement follows the launches of the AXA IM Maturity 2020 and Maturity 2022 Funds in October 2015 and November 2016 in the same range.
Provider view
Chris Iggo, chief investment officer of fixed income at Axa IM, said: “European high yield remains one of the few places where investors can still find attractive yields. As interest rates in Europe look likely to remain low, investors seeking a higher total return and willing to take on more risk could consider turning to this asset class as part of diversifying their sources of income.”
Adviser view
Dean Mullaly, managing director at London-based Mark Dean Wealth Management, said: “The only reason why this type of investment strategy is popular is because it offers greater yield in an environment where banks and building societies are offering low levels of interest. This is because they are riskier assets compared to conventional bonds.
“A few years ago, high-yield bonds were referred to as junk bonds, but investors are increasingly being forced up the risk curb to meet their capital requirements to supplement a fall in conventional bond yields. The high-risk bond space is very crowded at the moment, but I personally do not think that many such investments offer a high enough yield to compensate for the inflated level of risk.”
Charges
Ongoing charge figure of 0.76 per cent for the clean share class.
Verdict
The conventional bond market is not as it used to be. There has been an acceleration in bond sell-offs as markets across the globe brace for a seemingly imminent hike in US interest rates. What is more, there has been greater correlation between bonds and equities – despite the former billed as the traditional diversifier of the latter.
