London-based investment manager Stratton Street Capital LLP is offering its first fund in Australia, the Stratton Street New Capital Wealthy Nations Bond Fund, for wholesale and institutional investors, with Equity Trustees Limited (EQT) acting as responsible entity (RE).
Andrew Seaman, fixed income portfolio manager at Stratton Street, said unlike index-based bond funds that buy most from those that issue most bonds – which means from the most indebted – Stratton Street is a value investor in bonds.
“People expect global bond markets to price securities efficiently, but that is not the case. We find there are bonds that have substantially higher yields but the same or lower risk profile compared to others. We can buy these and wait until the market realises where the value is, giving us a higher income and strong capital gain potential.
“This way our approach also removes some of the risk that is inevitably carried by funds which rely on weighting.
“Over the past few years, we have seen the effects of unsustainable debts around the world, as once highly-rated countries like Greece and Iceland turned out not to be as safe as investors assumed.
“The net foreign asset position of a country is an essential component in our investment process and the Fund does not invest in countries with liabilities greater than 50 percent of GDP, regardless of their index weighting or supposed credit rating.
“The Fund invests in issuers that Stratton Street believes can sustain their debts and pay investors back. This results in us focusing largely on investing in the high growth creditor nations of Asia, such as China, Singapore and South Korea. These countries have enough overseas assets to pay back their foreign debt and they are borrowing to invest in their long term growth.
“By holding a portfolio of good value, quality bonds that are hedged into Australian dollars, investors in Australia will have little volatility but higher potential returns than domestic securities.”
Mr Seaman said that Stratton Street sees Australia as a particularly attractive, sophisticated investor market, with a strong regulatory approach.
“Appointing Equity Trustees as RE makes it easier for us to market products in Australia as it is a long established institution offering a high level of support and a very competent distribution network.
“It means that we can avoid the problems and costs of setting up administration and distribution in our own name from the outset.”
The fund is primarily suited to investors seeking an alternative to, or diversification from, traditional fixed income strategies. It has a recommended minimum investment time frame of five years and the minimum initial investment is AUD$1,000,000 (lower if through an Investor Directed Portfolio Service (IDPS).
The net foreign asset position of a country is an essential component in the investment process and the fund does not invest in countries with liabilities greater than 50 percent of GDP, regardless of their index weighting or supposed credit rating.
The fund seeks to deliver long term appreciation for investors through a combination of capital growth and income, through exposure to investment grade securities that Stratton Street believes are undervalued. It will also use derivatives such as forward foreign exchange contracts in order to hedge non-Australian dollar exposure.
About Stratton Street Capital:
Stratton Street is an investment management and advisory company specializing in fixed interest assets. Based in the United Kingdom, Stratton Street assumed the regulatory functions of the forerunning company of MSG & Partners Ltd in 2005. Since then, it has grown its asset base to manage and advise over USD$2 billion for clients across the globe.
About Equity Trustees:
Equity Trustees Limited (EQT) is a publicly listed company that provides a range of financial services to corporate and private clients. Its businesses include funds management, responsible entity appointments, private client wealth management and corporate and personal superannuation. The company has over $4 billion in its funds management, private client and superannuation businesses and has more than $19 billion under responsible entity administration. Equity Trustees employs over 180 people in its Melbourne, Sydney and Brisbane offices
For more information please contact:
Harvey Kalman – Phone : 03 8623 5301
13 May 2013