The Fund aims to invest primarily in asset-backed FRNs, with the majority of assets consisting of AAA-rated residential mortgage-backed securities issued by leading financial institutions.
These securities are conservatively structured thereby providing minimal credit risk. As an illustration of their attraction, residential property markets would need to fall in value by more than 50% for such assets to be at risk of default. The Fund will have no direct or indirect exposure to US sub-prime assets.
The Fund will seek to achieve its investment objective, mainly through investment in a portfolio of high quality debt securities including asset backed securities and corporate FRNs.
Asset-backed securities (ABS) are debt securities where the payment of interest and principal depends on the cash flow generated by a collection of assets and are therefore bankruptcy remote from the issuing institution.
These assets are generally secured debt obligations and include residential mortgages, commercial real estate mortgages, secured small business loans, and other types. Unsecured debt obligations like credit card receivables and consumer loans can also form the collateral pool for ABS deals, but these types of deals are in the minority. ABS deals can vary in credit rating as well as duration, with the most common offering a 3-5 year AAA.
Corporate Floating Rate Notes (FRNs) are debt securities issued by banks, building societies, other financial institutions and corporates with a variable interest rate. The interest rate payable on FRNs may be reset periodically by reference to some independent interest rate index or according to a prescribed formula.
The investments of the Fund will be issued by world-wide issuers and may be denominated in any currency, although they will be predominantly denominated in Sterling, US Dollars and Euro and may or may not be listed on recognised exchanges and markets.
