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 of investments and the income from them will rise and fall. This will cause the fund price, as well as any income paid by the fund, to fall as well as rise. There is no guarantee the fund will achieve its objective, and you may not get back the amount you originally invested.
The value of the fund may fall if the issuer of a fixed income security held is unable to pay income payments or repay its debt (known as a default).
The fund may use derivatives with the aim of profiting from a rise or a fall in the value of an asset (for example, a company’s bonds). However, if the asset’s value varies in a different manner, the fund may incur a loss.
The fund invests mainly in one type of asset. This type of fund can experience larger-than-average price changes when compared to a fund which invests in a broader range of assets.
Changes in currency exchange rates will affect the value of your investment.
If the share class is hedged (H share class), it aims to mirror the performance of another share class. We cannot guarantee that the hedging objective will be achieved. The hedging strategy will limit holders of the hedged share class from benefiting if the hedged share class currency falls against the US dollar.
The fund will invest in emerging markets which are generally smaller, more sensitive to economic and political factors, and where investments are less easily bought and sold. In exceptional circumstances, the fund may encounter difficulties when selling or collecting income from these investments, which could cause the fund to incur a loss. In extreme circumstances, it could lead to the temporary suspension of dealing in shares in the fund.
When interest rates rise, the value of the fund is likely to fall.
Where market conditions make it hard to sell the fund’s investments at a fair price to meet customers’ sale requests, we may temporarily suspend dealing in the fund’s shares.
Some transactions the fund makes, such as placing cash on deposit, require the use of other financial institutions (for example, banks). If one of these institutions defaults on their obligations or becomes insolvent, the fund may incur a loss.
The Fund allows for the extensive use of derivatives.