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Baring to convert US Plus Bond Fund to Global Aggregate Bond Fund

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Baring Asset Management has announced the conversion of its Baring US Plus Bond Fund to the Baring Global Aggregate Bond Fund, subject to unitholder approval.

Baring Asset Management has announced the conversion of its Baring US Plus Bond Fund to the Baring Global Aggregate Bond Fund, subject to unitholder approval.

The investment objectives of the fund will now be focused on generating long-term growth in the value of global fixed income assets from a combination of capital appreciation and income.

‘The US Plus Bond Fund offered investors access to the US bond market, and while performance for the fund has been good, we have seen increasing demand for a pooled global aggregate product,’ says Harjeet Heer, head of Barings’ global aggregate business.

‘To best meet client requirements we are restructuring the fund as the Global Aggregate Bond Fund, which will introduce non-US assets, providing investors with an international bond fund with credit and currency exposure, and access to the full opportunity set. Barings has a good track record across a suite of global aggregate products and the converted fund will showcase Barings’ skills as a global fixed income manager.

‘Global bond markets have performed remarkably well over recent months, benefiting from a major spike in investor risk aversion. We have now seen several large economies slip into recession and investors have become increasingly unwilling to take on equity risk and have sought out the perceived safe haven of fixed interest investment. Most major bond markets have performed well but the greater safety of government bonds enabled them to outperform other, less secure, fixed interest assets, such as corporate debt.’

However, Barings warns that the recent performance of bond markets may be affected if inflation begins to rise, something that the market is not currently anticipating. Interest rates have been cut aggressively in the US and UK in a bid to stimulate economic growth and, although lower interest rates support higher bond prices, they can also increase inflationary pressures. Higher inflation erodes the value of future payments to bondholders, putting downward pressure on bond prices. 

‘Although current fears centre in deflation, if the central banks move towards quantitative easing as the next step, effectively printing money, then we would expect inflation to start rising. Thus far, this fear has been seen only in the rise in the price of gold,’ says Heer.

In this environment Barings recommends establishing a defensive position, to capture the economic slow down in the UK and Australia, favouring shorter dated bonds in those countries and Europe. Barings also favours a modest position in Japan as a defensive measure.

Adds Heer: ‘We believe that some attractive investment opportunities can be found in the currency markets, and we favour Sterling and Australian dollars against overvalued currencies such as the Japanese yen and US dollar which may suffer from a credibility crisis as the volume of US debt rises sharply requiring financing from abroad.’

The Baring Global Aggregate Bond Fund will invest in an internationally diversified portfolio of fixed income securities. This will normally consist of bonds and debentures issued by governments, supranational organisations, public authorities and corporations (whether secured or unsecured), but may also include spot foreign exchange transactions, forward foreign exchange contracts and currency futures, options and swaps for investment purposes or to seek to hedge the foreign exchange exposure of the fund’s assets against currency risk. 

The base currency of the fund is US dollars and the benchmark will be the Barclays Capital Global Aggregate Index (formerly as the Lehman Global Aggregate Index). The fund is an open-ended investment company domiciled in Ireland.

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