Money market funds – A fund that invests in high quality transferable short term GBP-denominated fixed and floating rate debt securities. The weighted average maturity typically will not exceed 60 days. These funds are often seen by investors as an alternative to cash deposits, for medium term or temporary cash deposits.
Short dated corporate bonds – A bond issued by a corporation. It pays a defined rate of interest rather than giving an entitlement to a share in the profits of the corporation. A bond must be repaid at a specific point in the future. A short dated bond typically has 1-5 years until maturity.
Bond hedge funds – There are many different types. Our portfolio will invest in global corporate bond funds, which target an annual return of 3.0% – 6.0% above short term deposits with a volatility similar to that of UK bonds with a 3 year average maturity. These funds have a low correlation to both bond and equity markets. In addition, each fund has its own unique investment style, resulting in complementary patterns of return. This produces attractive diversification and reduced risk. Each fund invests in a wide range of investment grade and high yield bonds in the UK and overseas (including emerging markets) and uses a number of derivative strategies to control interest rate and currency risk.
The holdings may be open ended investment companies established under UCITS III or quoted investment trusts and may include funds that are unregulated by the FCA and not covered by the FSCS.
Infrastructure funds – The funds we invest in finance infrastructure projects in the fields of government accommodation, education, health, transport, utilities and law and order. These projects typically have long term contracts with government agencies who commit to pay for agreed services. As such, this investment is designed to provide a predictable income stream with modest capital growth. Whilst government agencies represent a good credit risk, there is always the possibility of default or the termination of a contract under certain circumstances. Any fund we invest in will have a well diversified range of projects to mitigate these risks. Such investments are likely to be through a closed ended fund quoted on the London Stock Exchange, offering ready liquidity on normal Stock Exchange settlement terms.
Securitised loans funds – The particular securitised loans fund we invest in is a fund that finances loans to farmers for the purchase of agricultural machinery. This has proven to be a very stable business with a low default rate of just 0.2% as each loan covers just 65% of the value of the asset and is backed by personal guarantees. There is no leverage in the fund. The target rate of return is 6.5% after all fund costs. Liquidity is provided by loan redemptions, interest payments and by the ability to sell loans on to third party banks if necessary.
Whilst we will research and monitor investment in the securitised loans sector, we cannot guarantee the returns will continue at the target rate indefinitely or that liquidity will not be affected by unexpected events.
Such funds are likely to be unregulated by the FCA and may be registered in an offshore location such as the Cayman Islands so will fall outside the Financial Services Compensation Scheme. It will not distribute income, so if income is required it must be taken by selling units in the fund. Despite this, realised gains will be assessable to UK income tax in the year of disposal.
UK fixed interest gilts – Gilt-edged securities are bonds issued by certain national governments. The term is of British origin, and originally referred to the debt securities issued by the Bank of England, which had a gilt (or gilded) edge. Hence, they are known as gilt-edged securities, or gilts for short. Today the term is used in the United Kingdom as well as some Commonwealth nations, such as South Africa and India. However, when reference is made to “gilts”, what is generally meant is “UK gilts,” unless otherwise specified.
These bonds have a defined maturity date and carry a fixed coupon (rate of interest) which is paid semi-annually.
UK index-linked gilts – Index-linked gilts differ from conventional gilts in that both the semi-annual coupon payments and the principal payment are adjusted in line with movements in the General Index of Retail Prices in the UK (also known as the Retail Price Index).
UK corporate bonds – A bond issued by a corporation. It pays a defined rate of interest rather than giving an entitlement to a share in the profits of the corporation. A bond must be repaid at a defined point in the future.
International bonds – A bond issued by a government or corporation in a country outside of the UK, usually in a foreign currency.
UK quoted stocks – Stock in a publicly-traded company that is traded on the London stock exchange.
International funds – A fund that can invest in companies located anywhere outside of its investors’ country of residence.
Emerging market funds – A fund that invests the majority of its assets in the financial markets of a single developing country or a group of developing countries.
Smaller Companies funds – A fund that invests in smaller companies (to generate capital growth).
Commercial property funds – A fund that invests in commercial property, either through direct commercial real estate, or the shares of listed real estate companies (including REITs).
Commodity funds – A Commodity fund invests in commodities, such as gold, oil or livestock.
Hedge funds – Hedge funds invest in a diverse range of markets and use a wide variety of investment styles and financial instruments. The name “hedge fund” refers to the hedging techniques traditionally used by hedge fund to control risk or to take short positions allowing the fund to make positive returns from falling markets.
We invest in several multi-asset class hedge funds, which will invest in bonds, equities, commodities and foreign exchange contracts.