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Low yields on bonds are forcing this low-risk absolute return
fund to turn to equities for income
SYZ Oyster
Absolute Return
TRUSTNET
[period] is relatively short,” the
manager explained. “But the lower
the return, the lower the magnitude
of the acceptable drawdown and this
is why the management of portfolio
risk and volatility becomes even more
important.”
FACT BOX
MANAGER: Adrien Pichoud / LAUNCHED: 23/12/2014 / FUND SIZE: £137.9m / OCF: 0.74%
CROWN RATING
PERFORMANCE OF FUND VS SECTOR
AND INDEX SINCE LAUNCH
IA Targeted Absolute Return (8.50%)
Oyster Absolute Return (10.58%)
LIBOR (2.57%)
12%
10%
8%
6%
4%
2%
0%
-2%
6
-4%
structural view is that the low-yield
environment is going to remain for a
while. Therefore, we have to adapt the
way we manage.”
While the portfolio traditionally
used equities to provide some
protection from interest-rate risk, it
is now also using this asset class to
deliver income.
“In the past, you had equities which
were here for price appreciation and
fixed income which was here for
income generation,” Pichoud said.
“Today, the fund has less [in fixed
income] and the equity part also has
to have some income generation to
compensate for the lower income that
is generated from the bond part.”
As such, the fund has 15.9 per cent in
equities – well within its 25 per cent
limit – while its bond exposure, which
typically stood at 70 to 85 per cent of
the portfolio, now stands at 52.1 per
cent. The remainder is held in liquidity
assets and special opportunities.
W
ith around $13trn of debt
now in negative-yielding
territory, more and more
investors are looking away from bonds
to beef up their income.
Adrien Pichoud, manager of the
£137.9m SYZ Oyster Absolute Return
fund, said he has had to make changes
to his portfolio since becoming
manager last July to ensure it can
deliver the lower risk and steady
performance it aims for.
The fund is designed to generate
bond-like absolute returns, with a
strong focus on capital preservation
and liquidity, but this has become more
difficult to achieve in recent years.
“I also manage similar strategies in
euros and Swiss francs, but it’s a little
bit easier to manage a sterling-based
portfolio because even short-dated
bonds or treasuries or gilts do provide
quality returns,” he explained.
“That being said, the yields generated
here are not very high and our
Another consequence of the low-
rate environment is that investors in
fixed income funds now have a lower
tolerance to losses.
“When you have higher returns,
then you can tolerate some level of
drawdown because your recovery
Source: FE Analytics
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