BARING International claims its High Yield Bond Fund offers the excitement of equities, the security of bonds and will still provide up to 20 per cent return during the next 12 months.
The fund has exposure to three high-yield bond markets that are predominantly US dollar-denominated: US corporate - or junk - bonds; emerging market bonds; and Organisation for Economic Co-operation and Development bonds, which are typically placed in Italy, Sweden and Australia.
Michael Mabbutt, a London-based fixed income investment manager, said about 60 per cent of the fund was exposed to emerging market debt.
Mr Mabbutt said: 'The performance of emerging market bonds is based predominantly on creditworthiness. For example, because the Mexican Government issues in US dollars the yield is much higher than the equivalent US Treasuries. The additional yield is because of the risk of default. The market is driven by creditworthiness rather than US interest rates.' But Mr Mabbutt warned that investors should anticipate a more volatile performance because the markets were driven as much by sentiment as their fundamentals.
'We believe that US corporate bonds will continue to outperform US Treasuries. Steady US growth and improving profitability will allow yield spreads to narrow. Yield spreads on emerging markets should also narrow as perceptions of creditworthiness improve.' Typically, the bonds in the fund are expected to yield about nine per cent during the next 12 months. The return on capital should range between six and 10 per cent.
Lin-yoke Seetoh, a Hong Kong-based director of the company, said: 'Right now there is a window of opportunity.
