The fund aims to deliver combined income and capital growth of at least the cash rate plus 2.5% a year over any three-year period. That is before any charges are taken and in any market conditions. The cash rate is based on the three-month EURIBOR rate at which banks borrow money from each other. The fund aims to achieve this while seeking to minimise the degree to which the value of the fund fluctuates over time, and also seeking to limit monthly losses. Managing the fund in this way reduces its ability to achieve returns significantly above three-month EURIBOR plus 2.5%. There is no guarantee that the fund will achieve a positive return over any period. Investors may not get back the original amount they invested.
The fund will invest predominantly – at least 70% – in bonds (loans to governments or companies paying fixed, floating or index-linked returns), currencies, cash, near cash (short-term and easily traded bonds) and deposits. These assets may be issued anywhere in the world and denominated in any currency. The fund may gain exposure to financial assets by investing through other funds or through the use of derivatives. Derivatives are financial contracts with a value derived from one or more underlying assets. The fund may use derivatives to reduce risk, to benefit from the fall in price of specific assets, and to gain exposure to investments exceeding the value of the fund in order to increase its potential return. Derivatives may be used to meet the fund's objective and for efficient portfolio management purposes. Derivatives the fund may invest in include: • Spot and forward contracts (bespoke agreements to buy or sell assets at a specified price at a future date) • Exchange-traded futures (standard agreements to buy or sell currencies, shares, bonds or interest rates at a future date at a predetermined price) • Swaps (agreements which involve exchanging cashflows with another party), including fixed or index-linked interest rate swaps, inflation-linked interest rate swaps, share, bonds, currency, or other asset swaps • Credit default swaps (agreements which exchange credit risk between parties. For example, they can be used to protect the fund against potential defaults of companies, group of companies or governments.) These swaps can be ‘single name’ where the credit risk relates to a bond of one particular issuer, or ‘index’ where the underlying asset is an index of bonds from different issuers • Options on shares, bonds, currencies or indexes (options offer the right or the obligation to buy or sell an asset at an agreed price and time). Bonds the fund may invest in include: • Up to 20% in asset-backed securities (tradeable market instruments whose income and therefore value derives from a specified group of underlying assets) • Bonds classified as ‘investment grade’ by one of the recognised ratings agencies (that is, rated ‘BBB-’ or above by Fitch or Standard & Poor’s, or ‘Baa3’ or above by Moody’s) • Up to 60% combined in unrated debt securities and ‘sub-investment grade’ bonds (that is, rated lower than ‘BBB-‘ by Fitch or Standard & Poor’s, or lower than ‘Baa3’ by Moody’s) • Bonds issued or guaranteed by companies, governments, local authorities, government agencies or certain public international bodies • Bonds from issuers located in emerging markets • Up to 20% in contingent convertible bonds (bonds issued by companies which convert into shares in the company when certain conditions are met).
The fund may also enter into total return swaps (agreements which involve exchanging flows of income and capital gains from an underlying asset with another party). The fund’s exposure through total return swaps will generally not exceed 25% of the fund’s value. The maximum which can be subject to total return swaps is 50% of the fund’s value.
Risks associated with the fund
The value and income from the fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested.
An ‘absolute return’ fund may not move in line with market trends or fully benefit from a positive market environment.
The fund may use derivatives to profit from an expected rise or fall in the value of an asset. Should the asset’s value vary in an unexpected way, the fund will incur a loss. The fund’s use of derivatives may be extensive and exceed the value of its assets (leverage). This has the effect of magnifying the size of losses and gains, resulting in greater fluctuations in the value of the fund.
The fund can be exposed to different currencies. Movements in currency exchange rates may adversely affect the value of your investment.
Investments in bonds are affected by interest rates, inflation and credit ratings. It is possible that bond issuers will not pay interest or return the capital. All of these events can reduce the value of bonds held by the fund.
The hedging process seeks to minimise, but cannot eliminate, the effect of movements in exchange rates on the performance of the hedged share class. Hedging also limits the ability to gain from favourable movements in exchange rates.
In exceptional circumstances where assets cannot be fairly valued, or have to be sold at a large discount to raise cash, we may temporarily suspend the fund in the best interest of all investors.
The fund could lose money if a counterparty with which it does business becomes unwilling or unable to repay money owed to the fund.
Further details of the risks that apply to the fund can be found in the fund's Prospectus.
The Fund allows for the extensive use of derivatives.