Industry Updates

Stratton St and Universal launch UCITS Renminbi Bond Fund

Monday, September 30, 2013

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Opalesque Industry Update - Universal-Investment and London based fund manager Stratton Street are launching the Stratton Street UCITS Renminbi Bond Fund UI (ISIN LU0850782243). This new UCITS fund follows the strategy of the long-term successful Renminbi Bond Fund managed since 2007 by Stratton Street, a pioneer in the renminbi sector. The original strategy was set up before the offshore CNH or “dim sum” bond market, and has not yet invested in those bonds as they are illiquid and expensive. Instead at present the fund invests in high quality investment grade Asian bonds and uses currency hedges to gain renminbi exposure.

The original fund has had positive returns every year since launch, and a total return of 87% in its first five years (US dollar A class to end December 2012). This fund is one of the best performing fixed income funds over this period globally and is highly awarded. The new fund is a UCITS vehicle allowing more investors to buy into this successful strategy. Stratton Street has a different approach to most fixed income fund managers. Andrew Seaman, fund manager for the Stratton Street UCITS Renminbi Bond Fund UI says “index based bond funds buy more from the most indebted. We buy from creditors, who can sustain their debts and pay us back.” This investment process has driven the company to focus largely on investing in the high growth creditor nations of Asia, including China. These countries have enough overseas assets to pay back their foreign debts and they are borrowing to invest in their long term growth. Over the long term these net foreign asset positions are associated with currency appreciation, which is why Stratton Street is positive about the long term appreciation prospects for the renminbi. The fund allows investors to benefit from the expected renminbi appreciation and the anticipated opening of China’s capital market.

Stratton Street’s base assumption is that the currency will double in value over the next decade. The fund is relatively low volatility, as the renminbi is a fairly stable currency. Investors can reduce the currency volatility by investing in the different share classes for the euro, sterling and Swiss franc class, leaving only exposure to the appreciation of the renminbi against the dollar. A dollar class is also available, as well as a CNH (offshore renminbi) class for investors who wish to use the fund to get a 2 of 2 higher yield than renminbi deposits. With the bonds held being investment grade, and in many cases government or quasi government the credit risk is relatively low. The fund is suitable for investors who want to take a long term view on the performance of Asia and the Chinese currency while holding good quality assets that provide a steady income.

Stratton St Capital has been profiled in Asia Pacific Intelligence.

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