With investors still wary of stock markets and deposit interest rates near all time lows, Pioneer Investments is adding a new sub-fund to its Luxembourg range called Strategic Income that will invest across the full range of bonds, from governments to high yield. The fund aims to actively rebalance the fund's assets among fixed-income categories and avoid benchmarking by maintaining a heavy exposure to high-yield bonds, but including enough high-grade paper to maintain an average weighting of BBB- or better.
The strategy has already proven successful in the United States as demonstrated by the US mutual fund equivalent, Pioneer Strategic Income Fund. The US Fund has a four star Morningstar rating. It was launched in April 1999 and over the three years to 28 February 2003 it is placed second out of 107 funds in Lipper's Multi-Sector Bond Category and is one of the select funds to be awarded Lipper Leader status.
The new Luxembourg sub-fund will be modelled on the US fund and will be managed by the same investment team, led by Ken Taubes, US head of global fixed interest. It currently has $50 million from European investors.
Investors are obviously concerned now about the risk of a rise in interest rates, and Pioneer argues this fund is the answer.
Lacis says, "We believe that an interest rate rise means the economy is improving. Therefore should rates move modestly upwards the credit spreads on the high-yield component should continue to tighten and dampen interest rate risk on the investment-grade side."
Pioneer is currently negotiating with commercial banks to market this to retail investors in Hong Kong, and already has agreements with the private bank arms of ING and ABN AMRO.