The fund aims to provide a combination of capital growth and income to deliver a return that is higher than that of the short-dated investment grade corporate bond market over any five-year period.
Investment policy and strategy
Core investment: At least 80% of the fund is invested in investment grade bonds issued by companies from anywhere in the world and asset-backed securities. The fund typically holds bonds which have short repayment dates and, as a result, it has a low portfolio duration. (Duration is a measure of a bond’s/bond fund’s sensitivity to changes in interest rates; a bond fund with low duration is less sensitive to changes in interest rates than funds with longer or higher duration.)
Other investment: The fund also invests in bonds issued by companies with a longer time to repayment, and uses derivatives to reduce their sensitivity to interest rate movements. The fund also holds cash or assets that can be quickly turned into cash.
Use of derivatives: The fund typically invests directly, but may also invest 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-euro investments.
For more information on the types of bonds held and derivatives used, please refer to the Prospectus.
Strategy in brief: The bonds held in the fund are generally issues due to be repaid within a short period so as to minimise the effect of interest rate movements on the fund’s value. Asset allocation and stock selection are at the heart of the fund’s investment process. The fund manager has the flexibility to spread the portfolio across issuers, sectors and countries, supported by in-depth research by an in-house team of analysts.
Performance comparator: The fund is actively managed. The iBoxx EUR Corporates 1-3 year Index 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.
Investment grade bonds: Bonds with a medium or high credit rating from a recognised credit rating agency are considered to be at lower risk from default than bonds with lower credit ratings.
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.
When interest rates rise, the value of the fund is likely to fall.
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.
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 sterling.
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.