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Alliance Trust Asset Management Monthly Income Bond Fund - Frequently Asked Questions Who manages the Fund? Gareth Quantrill and Stuart Steven are co-managers of the Fund and work closely with the other members of the Fixed Income team, Rod Davidson (Head of the Team) and Stuart McMaster. Back to top What is the experience of the team? The team has a total of over 80 years' experience of fixed income investing. All team members have held senior positions at large investment companies such as SWIP, Henderson, Legal & General and Aberdeen Asset Management. Back to top What is the launch date of the Fund? Tuesday 15th June 2010. Back to top How can I buy the Fund? The Fund can be bought directly from Alliance Trust Asset Management. It is also available through the Alliance Trust Savings platform. Clients of Alliance Trust Savings can benefit from no purchase transaction charges on any investment into this fund before 5pm on Wednesday 30th June 2010. Back to top What are the Fund charges? Retail and institutional share classes are available in the Fund. The Annual Management Charge is 1.0% for the retail share class and 0.5% for the institutional share class. An institutional performance fee share class is also available with an AMC of 0.2% and a performance fee of 20% of out-performance of the £ iBoxx 5-15 year Corporates Index, capped at 1.25%. Capital growth may be constrained or eroded with annual charges and performance fees (if applicable) being deducted from capital. Back to top What are the minimum investments? Anyone who invests through Alliance Trust Savings, will benefit from a minimum investment of £100 meaning that all investors have access to the highly competitive fees available in the institutional share classes (usually reserved for those with a minimum of £1,000,000 to invest). It is also possible to invest directly through Alliance Trust Asset Management but the standard minimum investment levels are applied. Please read the Key Information document for further details of all the share classes. Back to top What are the key characteristics of the Fund? A high quality, investment grade corporate bond portfolio with actively managed interest rate and currency risks. Back to top What is the objective of the Fund? The Fund aims to produce a monthly income yield and the prospect of capital growth by investing in a portfolio of assets which predominantly comprises corporate bonds, and also includes government bonds, whilst at the same time actively managing the interest rate exposure of the Fund. The Fund will pay interest distributions monthly. Back to top What type of investor will be interested in this type of fund? Investors seeking a monthly income, with a degree of capital growth, from a conservatively managed portfolio of fixed income stocks. Back to top What is the estimated yield of the Fund? At launch, the estimated annual Distribution Yield of the Fund is 6.3%*, payable monthly, and the Underlying Yield is 6.0%. *The yield is not guaranteed and may fall below this figure. Income can fall as well as rise as a result of market and currency fluctuations. Back to top To what extent is the income "guaranteed"? The income is not guaranteed, however there is a contractual commitment from the underlying borrowers (i.e. the companies or governments who issue the bond) to pay interest, at a pre-determined level for the life of the bonds. One of the risks of investing in bonds is that they may default on these payments. To help guide investors on the trustworthiness of a bond it is usually given a credit rating from an agency such as Moody's or Standard and Poor's. The Alliance Trust Monthly Income Portfolio will be investing predominantly in investment grade corporate bonds, that is, high quality. Back to top What makes the Fund different from other corporate bond funds? The Fund benefits from a focused team who do not have the distractions of multiple funds and are therefore able to outmanoeuvre market difficulties more efficiently than their larger rivals. The clear focus is on maintaining a consistent level of income whilst actively managing the interest rate and currency risks. Back to top On average, how many holdings are there in the portfolio? We have approximately 60-70 holdings in the portfolio. This allows good diversification whilst ensuring sufficient exposure to companies we expect to outperform. Many competitors make a virtue of having many more holdings in their bond funds. We believe, however, that this is more a reflection of their requirement to actively manage the huge sums under management rather than an efficient portfolio management technique. Back to top What are the main sources of risk in the Fund? There are 3 main sources of risk within the portfolio, credit risk i.e. that companies we are exposed to do not repay their debts, credit spread risk i.e. that the spread over governments that investors will accept for taking credit risk widens and finally interest rate risk i.e. that the yield on risk-free debt increases, causing bond prices to fall. Back to top How do you manage these risks? Credit risk is managed in two ways; firstly through selection of a conservative, investment grade portfolio and secondly by actively analysing and monitoring the performance of companies we are exposed to. We have the investment flexibility to reduce our exposure to corporate bonds if we believe that the market will significantly underperform government bonds. Interest rate risks are actively managed to protect capital. Back to top Why is it important to have liquidity in the Fund? We are very concerned to maintain liquidity in the portfolio because it means we will be able to grow the Fund significantly and still exploit our investment strategies efficiently and fully without having to "pay up" to deal in greater than market size. To this end we test the market liquidity in the bonds we own: the simplest test being the issue size and amount of bonds outstanding. We also look at the age of the deal (issues often become more illiquid over time), the number of bonds in the market for the same issuer and the amounts of quotes in the market for the bonds. Back to top How are you expecting to deliver such a high distribution yield? We believe that it is possible to deliver a high distribution yield because our experience and knowledge enable us to identify opportunities in the corporate bond markets. In particular, by avoiding short-dated and long-dated bonds on lower yields we can achieve a very attractive distribution yield. Back to top In which economic conditions will the Fund perform best? As a corporate bond fund, the Fund will perform best in the early-to-mid stages of an economic recovery. At this point companies are still bruised from the impact of the economic slowdown and will be conserving cash with muted M&A activity and central banks will be slow to increase short-term interest rates as they seek to nurture economic growth. This is exactly the situation we are in at the moment and explains our enthusiasm for the Fund as an investment proposition today. Back to top Why did you choose monthly distributions? In today's low bank rate environment, the provision of a steady source of income for investors has become more pressing. Bonds are ideally suited to satisfying this need, given their predictable cash flows and allow us to support monthly distributions without distorting our investment strategy. If clients do not need the monthly distribution then they can choose the accumulation shares instead. Back to top What do you mean by holding "no legacy positions"? Many managers run so much money that they simply own too much of an individual bond to ever be able to sell it and reinvest the proceeds at a reasonable price. So as their portfolios grow they allow them to get cluttered with positions that are not active choices but legacies of the past. Back to top What are the benefits of "being nimble"? What is meant by nimble is simply that we can execute our investment strategies efficiently because the sizes of our positions match the standard market trade size. Since the financial crisis started our counterparty banks have reduced the standard market trade size significantly to reflect their reduced appetite for running large trading books; this is a problem for many managers who have several billions of fixed income assets. Back to top |
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