Thames River is bringing to the market two new corporate bond funds under the stewardship of Stephen Drew. He will be supported by a team of three co-managers and a larger team of analysts. The Thames River Credit Select Fund is the more conservative of the two new launches and will predominantly focus on developed markets.
The fund will invest predominantly in higher quality ‘investment grade’ bonds, which are likely to make up around 80 - 90% of the portfolio. Up to 20% may also be invested in higher risk, high yield bonds. The aim is to target a yield in the region of 4.5% (variable and not guaranteed) and this income will be paid quarterly.
Economic factors, like changes in interest rates and inflation, can influence the prospects of individual bonds, which is why Stephen Drew believes it is important to carry out both economic analysis as well as research on individual companies. He will not chase high yields if he believes the risks outweigh the benefits: in an unstable economic environment, an abnormally high yield can signal a distressed bond with increased risk of default.
This fund has the flexibility to use sophisticated investment instruments such as derivatives to help shelter some of the fund’s capital during volatile periods. The success of this strategy depends on the skill of the manager, and it could prove costly if he gets it wrong. The aim is to take advantage of all possible opportunities throughout the economic cycle. Techniques will also be used to try to cushion the impact of any currency fluctuations.
Investors should note that the fund has an annual management charge of 1.5% and a performance fee of 15% of any outperformance of 3 month LIBOR (the London Interbank Offered Rate – the interest rate at which banks lend to each other). Performance fees can make these types of funds expensive - we argue that any active fund manager should be able to generate outperformance over the longer-term, and this type of fee is therefore often unjustified.
Please note this fund is not on the Wealth 150 list of our favourite funds. As with many new launches we would like to see how the fund’s strategy fares before making a further assessment.
Meera Patel
Senior Analyst
> Key Features of the Thames River Credit Select Fund
> Simplified Prospectus for the Thames River Credit Select Fund
