The fund aims to deliver combined income and capital growth of at least the cash rate plus 2.5% a year over any three-year period. That is before any charges are taken and in any market conditions. The cash rate is based on the three-month EURIBOR rate at which banks borrow money from each other. The fund aims to achieve this while seeking to minimise the degree to which the value of the fund fluctuates over time, and also seeking to limit monthly losses. Managing the fund in this way reduces its ability to achieve returns significantly above three-month EURIBOR plus 2.5%. There is no guarantee that the fund will achieve a positive return over any period. Investors may not get back the original amount they invested.
The fund will invest predominantly – at least 70% – in bonds (loans to governments or companies paying fixed, floating or index-linked returns), currencies, cash, near cash (short-term and easily traded bonds) and deposits. These assets may be issued anywhere in the world and denominated in any currency. The fund may gain exposure to financial assets by investing through other funds or through the use of derivatives. Derivatives are financial contracts with a value derived from one or more underlying assets. The fund may use derivatives to reduce risk, to benefit from the fall in price of specific assets, and to gain exposure to investments exceeding the value of the fund in order to increase its potential return. Derivatives may be used to meet the fund's objective and for efficient portfolio management purposes. Derivatives the fund may invest in include: • Spot and forward contracts (bespoke agreements to buy or sell assets at a specified price at a future date) • Exchange-traded futures (standard agreements to buy or sell currencies, shares, bonds or interest rates at a future date at a predetermined price) • Swaps (agreements which involve exchanging cashflows with another party), including fixed or index-linked interest rate swaps, inflation-linked interest rate swaps, share, bonds, currency, or other asset swaps • Credit default swaps (agreements which exchange credit risk between parties.
For example, they can be used to protect the fund against potential defaults of companies, group of companies or governments.) These swaps can be ‘single name’ where the credit risk relates to a bond of one particular issuer, or ‘index’ where the underlying asset is an index of bonds from different issuers • Options on shares, bonds, currencies or indexes (options offer the right or the obligation to buy or sell an asset at an agreed price and time). Bonds the fund may invest in include: • Up to 20% in asset-backed securities (tradeable market instruments whose income and therefore value derives from a specified group of underlying assets) • Bonds classified as ‘investment grade’ by one of the recognised ratings agencies (that is, rated ‘BBB-’ or above by Fitch or Standard & Poor’s, or ‘Baa3’ or above by Moody’s) • Up to 60% combined in unrated debt securities and ‘sub-investment grade’ bonds (that is, rated lower than ‘BBB-‘ by Fitch or Standard & Poor’s, or lower than ‘Baa3’ by Moody’s) • Bonds issued or guaranteed by companies, governments, local authorities, government agencies or certain public international bodies • Bonds from issuers located in emerging markets • Up to 20% in contingent convertible bonds (bonds issued by companies which convert into shares in the company when certain conditions are met). The fund may also enter into total return swaps (agreements which involve exchanging flows of income and capital gains from an underlying asset with another party). The fund’s exposure through total return swaps will generally not exceed 25% of the fund’s value. The maximum which can be subject to total return swaps is 50% of the fund’s value.
Risks associated with the fund
The value of investments and the income from them will fluctuate. This will cause
the fund price to fall as well as rise. These fluctuations may be more extreme in
periods of market disruption and other exceptional events. There is no guarantee
the fund objective will be achieved and you may not get back the original amount
If the share class is hedged (H share class), it aims to mirror the performance of another share class. We cannot guarantee that the hedging objective will be achieved. The hedging strategy will limit holders of the hedged share class from benefiting if the hedged share class currency falls against the euro.
The fund may take short positions through the use of derivatives. Short positions
reflect an investment view that the price of the underlying asset is expected to fall
in value. Accordingly, if this view is incorrect and the asset rises in value, the short
position will cause the fund to incur a loss.
Currency exchange rate fluctuations will impact the value of your investment.
Derivatives may be used to generate exposure to investments exceeding the net
asset value of the fund, thereby exposing the fund to a higher degree of risk. As a
result of increased market exposure, the size of any positive or negative movement
in markets will have a relatively larger effect on the net asset value of the fund. The
additional exposure will however be limited to such an extent as to not materially
increase the price fluctuations of the fund, in comparison to equivalent funds that do not use derivatives in this way.
The value of the fund will fall if the issuer of a fixed income security held is unable to pay income payments or repay its debt (known as a default). Fixed income securities that pay a higher level of income usually have a lower credit rating because of the increased risk of default. The higher the rating the less likely it is that the issuer will default, but ratings are subject to change.
In difficult market conditions the value of certain fund investments may be less predictable than normal and, in some cases, this may make such investments harder to sell at the last quoted market price, or at a price considered to be fair. Where market conditions make it hard to sell the fund’s investments at a fair price in order to meet customers’ sale requests, we may temporarily suspend dealing in the fund’s shares.
The fund manager will place transactions (including derivative transactions), hold positions and place cash on deposit with a range of counterparties (institutions). There is a risk that counterparties may default on their obligations or become insolvent.
The Fund allows for the extensive use of derivatives.