Corporate Bond Income Trust
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"Our aim is to select a portfolio of high quality bonds to generate a regular & stable income."
- Performance
- Fund aims
- Fund strategy
- Fund suitability
- Top 10 holdings
- Sector allocation
- Fund manager strategy and outlook
- Investment process overview
- Fund manager and investment team
- Fund facts
- How to invest
Why recommend this Fund to your clients?
- An uninterrupted history of attractive income since launch in 2003.
- A low level of capital volatility relative to many similar funds.
- A combination of an active interest rate strategy and conservative credit management.
- A relatively low-risk vehicle that can take advantage of value in the corporate bond market.
Percentage Growth Total Return Since Launch (to 30/06/10)
Percentage growth total return of fund versus sector to latest quarter end, total return, bid to bid price, Net income reinvested. UK Net in fund currency. Source: Lipper
[back to top]Cumulative Performance (% change to 30/06/10)
| 1 year | 3 years | 5 years* | Since launch (29/9/03) | |
|---|---|---|---|---|
Fund |
14.1 |
5.6 |
4.1 |
17.3 |
Sector median |
16.4 |
10.4 |
10.7 |
22.7 |
Quartile ranking |
3rd |
4th |
4th |
3rd |
Percentage growth to latest quarter end, bid price to bid price, no charges, UK Net in fund currency. Source : Lipper. Measured against UK Corporate Bond Sector
Discrete Performance (% change to 30/06/10)
30/06/09 - 30/06/10 |
30/06/08 - 30/06/09 |
29/06/07 - 30/06/08 |
30/06/06 - 29/06/07 |
30/06/05 - 30/06/06 |
|
|---|---|---|---|---|---|
| Fund | 14.1 |
-3.4 | -4.2 |
-1.3 |
-0.1 |
Sector median |
16.4 |
-3.2 |
-3.4 | -0.7 | 0.3 |
Percentage growth for discrete one-year periods, bid to bid price, no charges, UK Net in fund currency. Source : Lipper. Measured against UK Corporate Bond Sector.
[back to top]A closer look at the Fund
What is the Fund's aim?
The investment aim of the fund is to produce an attractive and consistent monthly income commensurate with long term capital stability.
[back to top]What does the Fund invest in?
The fund invests primarily in Sterling denominated, investment grade, fixed interest securities but also has the ability to invest in non-Sterling denominated bonds as appropriate.
At least 50% of the trust's assets must be invested in bonds rated Single-A or above.
Bond derivatives (representing up to 10% of the Fund's value) may be used for the purpose of efficient portfolio management.
[back to top]Who it's suited to
The Fund may be suitable for investors looking for:
- a relatively low-risk investment with the potential to outperform returns on cash over the medium term
- a regular income from a long-term investment
- portfolio diversification away from other asset classes
- a fund that will consider social responsibility as part of its overall investment process.
Investment philosophy
Our investment philosophy and style is best described as follows:Focused - The portfolio will typically have between 60-100 holdings consisting of at least 50 different issuers.
Long-term - Typical investment horizon of three to four years
Top-down - Asset allocation, duration, yield curve and sector.
Stock selection - Driven by strong fundamental analysis
Responsible - Embedded environmental, social and governance (ESG) analysis provides a broader perspective and represents the views of our customers in the investment process.
The overall investment philosophy is to allocate capital between a broad range of investment grade corporate bonds and gilts to provide an attractive and stable income whilst, at the same time, seeking to preserve that capital over the medium term. The fund does not mechanically buy yield but analyses the longer term cash flow dynamics of the relevant bonds to determine the sustainability of interest payments over time.
[back to top]Credit rating breakdown (as at 30/06/10)
Credit rating |
% |
|---|---|
| AAA | 0.0 |
AA |
1.1 |
A |
51.5 |
BBB |
44.2 |
| NR | 2.0 |
| Cash | 1.2 |
Top 10 holdings (as at 30/06/10)
% of fund |
|
|---|---|
SANTANDER UK |
3.8 |
RABOBANK NEDERLAND |
3.6 |
HSBC HOLDINGS PLC |
3.5 |
BAE SYSTEMS PLC |
3.1 |
LLOYDS BANKING GROUP PLC |
2.7 |
CENTRICA PLC |
2.7 |
BARCLAYS BANK PLC |
2.6 |
AMERICAN INTERNATIONAL GROUP INC |
2.5 |
MARKS & SPENCER PLC |
2.2 |
GOLDMAN SACHS GROUP INC/THE |
2.2 |
Total |
28.9 |
Top 10 issuer exposure (as at 30/06/10)
% of fund |
|
|---|---|
BANCO SANTANDER SA |
4.7 |
HSBC HOLDINGS PLC |
4.2 |
LLOYDS BANKING GROUP PLC |
4.1 |
RABOBANK NEDERLAND |
3.6 |
GOLDMAN SACHS GROUP INC/THE |
3.6 |
BAE SYSTEMS PLC |
3.1 |
CENTRICA PLC |
2.7 |
BARCLAYS BANK PLC |
2.6 |
AMERICAN INTERNATIONAL GROUP INC |
2.5 |
ROYAL BANK OF SCOTLAND PLC |
2.5 |
Total |
33.6 |
Sector Breakdown (as at 30/06/10)
Maturity breakdown (as at 30/06/10)
Asset Allocation
The team adopts a top-down approach to asset allocation, duration, yield curve and sector positioning whilst utilising a team of in-house investment analysts to adopt a bottom-up approach to industry and issuer selection within the preferred sectors.
In attempting to consistently produce an attractive income whilst protecting capital values over time, the fund will seek to exploit valuation anomalies in both the interest rate and credit markets.
In times of economic prosperity, credit market gains will likely offset weakness in government bond markets and vice versa. Our aim is to anticipate these conditions and position the fund accordingly and pre-emptively.
Fund Manager Strategy
The major government bond markets have continued to perform strongly over recent weeks, with 10-year US Treasury yields falling back below the 3% level. Ongoing uncertainty in the Eurozone has combined with weaker economic data in the US to reduce the attraction of risky asset classes and drive investor flows into safer havens. In the UK, an emergency budget further reinforced the new coalition government's reputation for fiscal responsibility and caused gilt yields to fall further across the curve.
Against this backdrop, corporate bonds have performed surprisingly well, with credit spreads stabilising at the wider levels. This stability has allowed the new issue market to tentatively re-open, with notable recent deals for America Movil, the Latin American mobile telephone operator, and a securitised property deal for Tesco. The latter following a buyback of some of their outstanding unsecured issuance.
We expect short-term interest rates to remain lower, for longer, than is currently discounted by the money markets, as monetary authorities are forced to keep conditions accommodative to offset the ongoing fiscal austerity programmes that are being demanded by debt market investors. As stability returns to the capital markets, the flight-to-safety premium that has recently been built into government bond valuations will likely be eroded to push yields higher as the year progresses.
Against this backdrop, the fund remains fully invested in credit, to take advantage of attractive valuations, and its average maturity profile remains short in order to provide some protection from capital erosion in a rising yield environment.
[back to top]Investment process summary
Initial screening:
- the key investment universe, from which the majority of new investments are selected, is the iBoxx Sterling Bond Index
- the fund also has the ability to invest in non-sterling denominated bonds.
Duration:
- the fund's duration decisions are driven by the team's top-down market forecasts and consistency is maintained with other, in-house portfolios whenever practicable.
Asset allocation:
- broad sector allocation is guided by the team's macro view, combining analysis of economic variables with key thematic trends and changes in the regulatory environment
- at the industry level the fund manager incorporates the bottom-up views of the research teams into the preferred top-down sector split.
Stock selection:
- once our industry views have been derived, our investment and ESG research analysts undertake ongoing, detailed analysis of the relevant corporate issuers
- from within the resultant, acceptable universe of issuers, the fund manager identifies the most attractive instrument-level opportunities available on a risk-reward basis.
Portfolio construction:
- by taking advantage of the mispricing of bonds in both the primary and secondary markets the fund manager attempts to maintain a balanced and diversified portfolio with the aim of consistently outperforming both the benchmark and peer group over a rolling 12-month period
- given the skewed nature of returns in the cash credit market, the overriding aim of the portfolio construction process is to avoid losers rather than pick winners.
Risk management:
- instrument default risk is assessed prior to any initial investment.
- event risk and fluctuations in market conditions are monitored on an ongoing basis to assess their likely impact on the default probabilities of all issuers held in the portfolio.
- risk is assessed across the fund in aggregate by considering the rating, sector and maturity profile of the portfolio.
Fund manager and investment team
Danny Fox, Fund manager
| Years in industry | 16 |
| Years at The Co-operative Asset Management | 1 |
Danny joined Co-operative Asset Management in March 2009.
Danny began his career in fund management in 1993 after graduating with a BSc. Honours in Business, Finance & Economics from the University of East Anglia. After eight years at Sun Alliance (later to become RSA) Investment Management, where he managed a selection of government and corporate bond funds, he moved on to Rothschild Asset Management in early 2002 to specialise in managing corporate bond portfolios. Following the acquisition of Rothschild Asset Management by Insight Investment, in early 2003, Danny took on responsibilities for the company's range of retail and income bond funds, which he managed until late 2008. He is an associate of CFA (UK).
Danny is part of an experienced team of fixed income fund managers. The team draws on the expertise of over 50 investment professionals at The Co-operative Asset Management, all based in Manchester, including:
- investment and ESG (environmental, social and governance) research analysts dedicated to researching companies
- fund managers focused on stock selection and constructing diversified portfolios which balance performance with risk and volatility
- operations and other experts supporting the analysis and investment process
- risk analysts, responsible for ensuring appropriate risk is taken within the portfolio.
Why choose the Corporate Bond Income Trust
from
Co-operative Asset Management?
The fund management activities of The Co-operative Financial Services (part of The Co-operative Group) are undertaken by The Co-operative Asset Management. The Co-operative is a household name in the UK offering a wide range of services to consumers including financial services such as insurance, banking and mortgages plus food, pharmacy and travel.
The Co-operative Group has over 12 million customers, of who over 290,000 are investors in our unit trust range, amounting to over £2 billion of assets under management.
Our distinctive approach is reflected in a number of unique investment credentials. We are the only fund manager to:
- apply a common core approach to responsible investment across all the funds we manage
- apply analysis and active engagement across all the funds we manage
- feed valuable business insights gained from our engagement process back in to company analysis performed for investment purposes.
The Co-operative Asset Management was also the first UK investor to publish its Company AGM voting record on its website in 2002, a practice now increasingly adopted by fund management groups offering SRI.
In advocating The Co-operative Asset Management to clients, advisers should remember that they are recommending:
- Britain's most ethical brand, The Co-operative Group*
- a responsible investment approach which fully integrates financial and ESG criteria in stock selection
- an investment process characterised by clear and informed views on why companies are undervalued and offer good long-term prospects
- an investment resource comprising experienced and committed individuals working to deliver out-performance while effecting positive change in the companies they invest in.
In advocating the fund to clients, advisers should remember that:
- adding bond investments to an all-stock portfolio generally lowers the risk of your client's overall portfolio.
- fixed income investments are a necessary component of a well diversified portfolio
- historically, bonds have returned more than cash investments, and exhibited less volatility than stocks
- the return on bonds has often offset the negative return on stocks during periods of market downturn.
Fund facts
| Manager name | Danny Fox |
| Location | Manchester |
| Fund type | Unit Trust |
Launch date |
29th September 2003 |
| Index/benchmark | Markit iBoxx Sterling Corporate |
Sector |
UK Corporate Bond |
| No of holdings | 74 |
| Fund size | £366 million |
| Distribution yield | 5.50% |
| Underlying yield | 4.60% |
| Distribution frequency | Monthly |
| Distribution dates | Monthly on the 17th |
| Prices | co-operativeassetmanagement.co.uk or The Financial Times |
| Sedol Code | 3358342 |
| Lipper ID | 60088476 |
