Invesco Perpetual Tactical Bond – New Launch

Corporate bonds are an essential part of a diverse portfolio. In terms of risk, they generally sit between cash and shares and many high-quality corporate bonds still offer yields in excess of 5%. Following a strong run for corporate bonds last year, some investors are now asking if the best opportunities have passed. Some of the returns on individual bonds last year were exceptional and are unlikely to be repeated, but in our opinion many bonds still look excellent value, and we were excited to learn of a new corporate bond fund from two of our favourite bond fund managers, Paul Read and Paul Causer, the Invesco Perpetual Tactical Bond Fund.

So what makes this fund stand out? Firstly, the strength of the management. Paul Read and Paul Causer have built an outstanding reputation managing Invesco Perpetual's range of fixed interest funds since the mid-1990s. They already run two funds on our Wealth 150 and we have no hesitation in adding this one.

Secondly, the income. It is a new launch, so it is impossible to offer anything more than an estimate, but we expect an initial annual yield of around 5%, tax-free in an ISA. When cash is offering very little, 5% is an excellent return. Of course, cash is guaranteed whereas bonds can fall in value as well as rise.

The third strength is, unlike many bond funds, it will be highly agile, moving freely between bonds of all different types depending on where the managers see the greatest value. Investment grade bonds, gilts and riskier high yield bonds will all be considered, and US or European bonds can be used as well as those from the UK. This does add currency risk. At all times the focus will be on maximising overall returns rather than producing income. In fact the fund may occasionally hold substantial quantities of cash if the managers are particularly cautious. For this reason the fund's yield will vary and investors seeking a consistent level of income should consider more traditional bond funds.

This added flexibility allows the managers to take advantage of the best corporate bond opportunities and adapt quickly to changes in the economic environment. This means there is the potential to deliver strong long-term performance regardless of conditions. However, please be under no illusion - like all investments it will fall in value as well as rise.

For instance, the big threats to bonds are inflation and interest rates. We believe the recent spike in inflation to 2.9% is a temporary blip caused by rising energy prices, and it should fall back below the Government's 2% target in the next few months. However, in the longer term when the economy moves into the next phase of recovery, inflation and interest rates will rise. In this kind of environment I want managers like Paul Read and Paul Causer in charge of my bonds, with the extra flexibility this fund offers them.

We have no doubt that Paul Read and Paul Causer have the experience to manage a more nimble, tactical fund as they have frequently made astute market calls in the past. If you would like your fixed interest exposure strategically managed for you, or are simply looking to maximise profits from the corporate bond market, this fund could be well worth a closer look.