Jamie Grant, head of Asia fixed income told (IA‘s sister publication) Fund Selector Asia, that it plans to launch the fund during the first six months of 2015.
The fund is expected to invest in Asian fixed income securities with one-third of its assets being deployed in investment grade bonds, another third in high yield, and a similar proportion in local currencies.
Grant said: “Asian investors understand Asia and want to keep their money in the region. But European and American investors also want exposure to the region, so hopefully we will build the right product that delivers for them.
“We look at two aspects for bond investing. Where is the growth and what is the inflation outlook? That is the starting point.
“The economic growth outlook in Asia is better than anywhere else in the world. Inflation has always been a problem in Asia, but it is contained.”
Absolute return funds seek to offer returns along with capital growth by altering the asset allocation depending upon market dynamics, with the flexibility to implement long and short positions in their stated investment universe.
Typically, in a rising rate scenario, absolute return is another strategy that can work as you are unconstrained and not managed relative to benchmark, he said.
For investors who do not wish to be exposed to the use of derivatives in absolute return funds, he suggests the traditional bond funds.
Fixed income appetite
The expected rise in interest rates has created the perception that all fixed income will have a difficult time and investors will start to lose interest in the products, Grant said.
However, he disagrees. He believes fixed income products always have a place in an investment portfolio for income needs and overall diversification.
“What the 2008 financial crisis taught all of us is that fixed income is becoming more relevant as it generates cash, which gives you flexibility in a broader asset allocation.”
He acknowledged that fixed income is a small part of asset allocation in Asia, as investors are more inclined to invest in equities and property.
