Stratton Street has added CNH, offshore renminbi, in order to mitigate low returns in the currency’s bond market and CHF, which it said reflected investor demand for protection from a rapid appreciation of the franc. The RBF is a long-only bond fund designed to give investors exposure to the growth of the Chinese economy through bond and currency investments.
The RBF increased in size from $47 million to $93 million in 2011, with investors seeing a return of 9.73% on the US dollar class. That compares with the HSBC Offshore Renminbi Bond Index, which returned 1.63% in US dollars.
Andy Seaman, partner and portfolio manager at Stratton Street, said the reason behind the addition of the CNH currency class was that the offshore renminbi bond market, while still in its infancy, was relatively expensive compared to the onshore market.
“Rather than buy expensive CNH bonds, you can buy cheap dollar bonds and hedge the currency exposure,” Seaman tells EuromoneyFXNews.
Seaman said the RBF is unique in that it offers renminbi exposure by taking a portfolio of Asian bonds and adding currency exposure to the renminbi/USD exchange rate.
He said by doing this, he was able to create a higher-grade portfolio and achieve a yield much greater than the offshore renminbi (Dim Sum) bond market.
Seaman said that the portfolio was yielding 6% gross against 2% gross for a similar duration Dim Sum portfolio.
“We remain fearful that the performance of the Dim Sum market will need to correct further with yields rising and portfolios underperforming, as increased bond issuance introduces further liquidity,” he says.
“We remain ready to invest directly when we believe the time and the quality of the debt issues reflect the wider bond market opportunities. In the meantime, we believe this is a well-structured way of maximizing returns for holders of CNH and other currencies.”
Seaman added that the CHF currency class had been introduced amid demand from Swiss-based investors, who feared that a sudden appreciation of the franc might dampen returns.
The new currency classes have been split into two further sub-classes: one for advisers and wealth managers; and a separate sub-class for institutional investors, to widen distribution of the fund.
Previously, the RBF was only available in dollars, euro, pounds, Singapore dollars and yen.