To celebrate the success of its Dynamic Bond Trust, Legal & General has launched the fund into the retail arena.

Fund manager Richard ‘Dickie’ Hodges employs a variety of strategies to add value and control risk in ways unavailable to traditional bond funds.

The fund is fully UCITS III compliant and is a genuinely unconstrained bond fund, being able to manoeuvre around physical bond holdings using derivatives.

L&G’s sales director, Ben Waterhouse, says, ‘This is a fully flexible fixed-income product, run by an award-winning fund manager with a huge amount of resource at his disposal.’

L&G manages £108 billion in fixed-interest assets, and £45 billion of this is run by the active fixed-interest team.

Minimum investment: £500
Initial charge: 3%
Annual mngmt fee: 1.25%
Contact: 0845 070 8684

Robin Amlôt says:
L&G launched this trust in April last year to institutional investors and, a year later, cut the minimum investment from £50,000 to £500, bringing the fund into the purview of the private investor.

The fund is currently sixth out of 52 in the UK Other Bond sector (over six months). Slightly under half of the fund is currently in investment-grade corporate bonds (but with low exposure to the financial sector), while exposure to high-yield (and, therefore, high-risk) bonds has been hedged down to less than ten per cent.

Unlike traditional single-strategy bond funds, the Dynamic Bond Trust has
an open remit, aiming to generate a return through both income and capital growth, and invests across all fixed-income sectors, including high-yield, government debt, corporate bonds and cash.

This flexible, unconstrained approach extends to full use of the fund’s UCITS III investment powers. What this means is Hodges and his team may invest in derivatives to manage the fund’s position and, unlike many bond funds, are able to take ‘short’ positions as well as the more traditional buy and hold ‘long’ positions.

This ought to be good news for potential investors in the current climate for debt, with derivatives such as exchange-traded futures and interest rate swaps, short positions and hedges being used to protect the portfolio. The more suspicious might feel that it adds yet another layer of risk but, given the background and track record of the management team, that would be unfair.

In fact, Dickie Hodges describes the trust’s flexibility as ‘a priceless commodity’ in the current volatile market conditions. The ability to sell short corporate debt may be a key factor in the fund’s performance over the second year of its existence.

Most people now accept the gravity of the global credit crunch. In such market conditions the flexible approach of the Dynamic Bond Trust may reap rewards where other fixed-interest funds will falter.

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