MONTHLY INCOME BOND FUND FOR PROFESSIONAL NOT SUITABLE FOR RETAIL INVESTORS.

Transcription

1 FOR PROFESSIONAL ADVISERS ONLY, NOT SUITABLE FOR RETAIL INVESTORS. MONTHLY INCOME BOND FUND

2 RLAM MONTHLY INCOME BOND FUND 2

3 MONTHLY INCOME BOND FUND RLAM Key points Income: the fund aims to provide income in excess of the yield of its benchmark, distributed in smoothed monthly payments Diversified: a diversified fund of funds with exposure across the fixed income universe including cash, corporate and government bonds, investment grade and high yield Strategic: a flexible remit that allows the manager to find the best income opportunities Team: managed by our award-winning fixed income experts Why monthly income? Most of us are used to being paid monthly for our work, creating a regular income stream. Throughout our working lives the monthly salary we receive keeps a roof over our heads, food on the table and pays our bills. In fact whether it is a utility bill or a Netflix account, nowadays most services are accounted for on a monthly basis. So whether your clients are seeking to supplement or replace their income, be it in the accumulation phase of their lives or post retirement - the combination of financial advice and a suitable investment solution is of critical importance. Why RLAM? The RL Monthly Income Bond Fund, managed by Head of Fixed Income, Jonathan Platt and Senior Fund Manager, Richard Nelson, is an easily accessible solution investing in funds offering the very best income ideas. Our fixed income committee actively monitors the asset allocation and fund selection to seek to meet your clients income needs in a risk managed manner. Our award winning range of fixed income funds spans the risk and return spectrum from cash and gilts to credit and high yield, which means that your clients have access to a diversified asset mix across market cycles. We have a collegiate approach to investing on behalf of our clients, which means that your clients benefit from the expertise of our experienced team. 3

4 RLAM MONTHLY INCOME BOND FUND The challenges The provision of a monthly income might, at first glance, appear to be a simple task. However, the last 20 years have seen a gradual decline in interest rates and investment yields which has reduced interest earned on cash and income earned from lower risk investments. Bank of England (BoE) Base Rate BoE Base Rate in % Source: Bank of England as at Prior to May 2012 the Official Bank rate was published to two decimal places but has since been changed to four decimal places for consistency Allocation Yield 6.20% Duration 4.6 yrs 1998 Allocation in 2018 Yield 1.80% Duration 7.5 yrs Fund at launch in 2018 Yield 5.30% Duration 3.8 yrs Investment Grade Credit 50% Government Bonds 30% Strategic Bonds 50% Short Duration Bonds 30% High Yield 10% Cash 20% Investment Grade Credit 10% Source: RLAM, for illustrative purposes only and 2018 allocations based on typical bond portfolios with minimum income target at those dates. Whilst a falling yield environment has produced strong total returns as asset prices have risen, we can see from the above charts that an appropriate allocation in 1998 would produce a much lower yield today, meaning that investors have had to look to higher-yielding assets to support their income needs. There have been many changes to the market in the last 20 years. As well as lower yields, many long-dated bonds have now been issued including 100-year bonds. This combination means that duration, a measure of interest rate sensitivity, is now much higher. This increased sensitivity exposes investors to greater capital risk if interest rates rise, so managing duration is just as important as targeting yield. We believe that in the current climate of lower yields, with potentially rising interest rates on the horizon and the associated threat from market duration, it is essential to seek the expertise of experienced managers. 4

5 MONTHLY INCOME BOND FUND RLAM Strategic asset allocation The following chart uses a model portfolio of our RL Monthly Income Bond Fund, based on its portfolio composition at launch, to illustrate how the strategic mix of the fund could lower volatility and provide smoother returns in comparison to comparable sectors such as high yield and corporate bonds. RL Monthly Income Bond Fund model portfolio /11/13 08/01/14 08/03/14 08/05/14 08/07/14 08/09/14 08/11/14 08/01/15 08/03/15 08/05/15 08/07/15 08/09/15 08/11/15 08/01/16 08/03/16 08/05/16 08/07/16 08/09/16 08/11/16 08/01/17 08/03/17 08/05/17 08/07/17 08/09/17 08/11/17 08/01/18 08/03/18 08/05/18 RL Monthly Income Bond Model Portfolio IA Sterling High Yield TR in GB RPI TR in GB IA Sterling Corporate Bond TR in GB IA Sterling Strategic Bond TR in GB RL Monthly Income Bond Fund Composite Benchmark TR in GB Simulated performance results have inherent limitations and do not represent actual trading/returns. They are not a reliable indicator of future performance. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested Source: RLAM and FE as at The chart includes simulated performance data for the RL Monhtly Income Bond Fund model portfolio. Returns based on quarterly rebalanced model portfolio comprising funds listed in the table below. Please refer to page 9 for details of benchmark. RL Monthly Income Bond Fund typical portfolio Fund Asset class IA sector RL Sterling Extra Yield Bond Fund Strategic Bond IA Sterling Strategic Bond RL Global Bond Opportunities Fund Strategic Bond IA Sterling Strategic Bond RL Short Duration Global High Yield Bond Fund Short Duration IA Sterling High Yield RL Sustainable Managed Income Trust Investment Grade Credit IA Unclassified RL Global High Yield Bond Fund High Yield IA Sterling High Yield RL Short Duration Credit Fund Short Duration IA Sterling Strategic Bond Portfolio is for illustrative purposes only and will be subject to change. The fund may invest outside of indicated funds and asset classes as the manager sees fit. 5

6 RLAM MONTHLY INCOME BOND FUND A fund of funds Our broad range of fixed income funds means we are well equipped to cater to meet the needs of income seeking investors. Below we explore the investment universe available to the fund management team: Short Duration RL Short Duration Credit Fund Paola Binns Seeking to provide an above benchmark yield whilst aiming to protect against surprise and longer-term interest rate rises Rayner Spencer Mills Rated RL Short Duration Global High Yield Fund Azhar Hussain and Stephen Tapley Seeking to deliver returns in excess of cash with lower volatility than broader fixed income markets Rayner Spencer Mills Rated Investment Grade Credit RL Sustainable Managed Income Fund Richard Nelson Core RLAM credit portfolio aligned to Sustainable themes and delivering monthly income Strategic Bond RL Sterling Extra Yield Fund Eric Holt, FE Alpha Manager rated Value oriented approach, striking the balance between quality and yield opportunities in sterling markets The Adviser Centre Rated RL Global Bond Opportunities Fund Eric Holt, FE Alpha Manager rated and Rachid Semaoune Income oriented unconstrained global bond fund with some opportunity for growth Award-winning approach. Past performance is not a guide to future performance. 6 RATED FUND 2016 SMONEY OBSERVER MONEYOB ERVER MONEY OBSERVER

7 MONTHLY INCOME BOND FUND RLAM Government Bonds RL Government Bond Fund Craig Inches and Paul Rayner Actively managed strategies seeking to add value through Duration management, yield curve, cross market and bond selection High Yield RL Global High Yield Fund Azhar Hussain and Stephen Tapley Global by design, focusing on fundamentals to aim to deliver income with lower volatility Cash Cash Plus Fund Craig Inches and Tony Cole Aims to protect capital, while providing an income in excess of money market rates Enhanced Cash Plus Fund Craig Inches and Richard Nelson Aims to minimise the risk to capital, while providing income and capital growth in excess of money market rates 7

8 RLAM MONTHLY INCOME BOND FUND Fixed income committee Lead managers Jonathan Platt (Head of Fixed Income) and Richard Nelson (Senior Fund Manager) are supported in the day to day management of the fund by our entire team of fixed income experts. In particular, asset allocation expertise and governance is provided by Eric Holt (Head of Credit), Azhar Hussain (Head of Global High Yield) and Ewan McAlpine (Senior Client Portfolio Manager). The RL Monthly Income Bond investment team has access to our full range of award winning retail and institutional fixed income funds in order to construct a mix of funds that aim to meet your clients income needs. Lead Managers Jonathan Platt Head of Fixed Income Richard Nelson Senior Fund Manager Eric Holt Head of Credit Azhar Hussain Head of Global High Yield Ewan McAlpine Senior Client Portfolio Manager 8

9 MONTHLY INCOME BOND FUND RLAM Key fund data Fund name RL Monthly Income Bond Fund Launch date Fund managers Benchmark Fund objective Currency IA sector Share classes Jonathan Platt and Richard Nelson 50% the BofA ML BB-B Global Non-Financial High Yield Constrained Index (hedged to Sterling); 50% the BofA ML 1-10 Year Sterling Non-Gilt Index To provide income in excess of the reference benchmark, net of fees, with the potential for capital growth over the medium to long term. GBP IA Sterling Strategic Bond M Inc: GB00BD940Q97 M Acc: GB00BD940R05 Minimum investment 10,000 Annual management charge 0.35% Target ongoing charges figure 0.55% Distributions Monthly 9

10 RLAM MONTHLY INCOME BOND FUND Glossary Cash Cash investments include money in bank accounts, savings accounts and term deposits and can provide stable, low-risk income in the form of regular interest payments. You can often earn a higher interest rate on term deposits than you can on high-interest savings accounts. Yield The yield is the income return on an investment, such as the interest or dividends received from holding a particular security. The yield is usually expressed as an annual percentage rate based on the investment s cost, current market value or face value. Credit Refers to corporate bonds which are loans made to a company for a fixed period by an investor, for which they receive a defined return in the form of fixed periodic payments and the eventual return of principal at maturity. Income Income is money that an individual or business receives through investing capital. Government bonds A government bond is a loan made to a government to support government spending, for which they receive a defined return in the form of fixed periodic payments and the eventual return of principal at maturity. Before investing in government bonds, investors need to assess several risks associated with the country, such as country risk, political risk, inflation risk and interest rate risk, although the government usually has low credit risk. Strategic bonds A true strategic bond fund typically invests across the entire range of fixed income to offer diversification and the ability to allocate your cash to the areas that offer the best returns for the risk they hold. Sustainable investing Investments in companies that are well positioned to benefit from products and services that help solve major environmental and social challenges and manage their Environmental, Social and Governance (ESG) risks better than average. Duration The sensitivity of a bond s price to changes in interest rates. If rates increase, a short duration portfolio will experience less of a price decline than a long duration portfolio. If rates fall, a short duration portfolio will experience less of a price increase than a long duration portfolio. To put it another way, if rates increase by 1%, the price of a bond with a 10-year duration will lose 10%, but a bond with a 5-year duration will lose only 5%. A bond with -5-year duration will rise in price by 5%. 10

11 MONTHLY INCOME BOND FUND RLAM High yield bonds Bonds rated below investment grade (BBB- or lower). These bonds offer higher yields to compensate investors for taking additional risk. However, ratings are not the only measure of risk, and some high yield bonds may offer attractive risk/return profiles for active investors who can conduct their own research and analysis. Investment grade bonds Bonds rated BBB and higher. These bonds offer lower yields than those of high yield bonds, reflecting their relatively lower risk. However, ratings are not the only measure of risk, and investment grade bonds may not always offer an attractive risk/return profile. 11

12 Contact us For more information about the Funds or RLAM s range of products and services, please contact us. Royal London Asset Management 55 Gracechurch Street London EC3V 0RL Tel: Fax: bdsupport@rlam.co.uk Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. For more information concerning the risks of investing, please refer to the Prospectus and Key Investor Information Document (KIID). Issued June 2018 by Royal London Asset Management Limited, registered in England and Wales number Authorised and regulated by the Financial Conduct Authority. Registered Office: 55 Gracechurch Street, London, EC3V 0RL. Ref: BR RLAM PD