The EI Sturdza Strategic Euro Bond Fund launched in 2009, just after the collapse of Lehman Brothers. At the time, cash was a risky investment due to counterparty exposure risk. As a result, the Fund’s profile was constructed to be very cautious: with a duration below 2, investing in Investment Grade issues, with no more than 25% of NAV invested in BBB (i.e. low duration risk / low credit risk). In addition, the Fund was not permitted to invest in subordinated debt.
The behaviour of the Fund was comparable to a single A rated corporate with a maturity of 1.5-2 years. Against the backdrop of an ultra-accommodative monetary policy implemented by the ECB, with a negative deposit rate (-0.40%) and QE program, it became more difficult to deliver attractive returns for the Fund. As such the decision was taken to amend the prospectus to yield the possibility for the Fund to deliver enhanced returns to investors.
The main changes which have been incorporated are:
• Minimum 75% Investment grade + maximum 25% Non-Investment Grade (i.e. Crossover BB/BB+ bonds)
• Maximum 25% Subordinated debt (i.e. hybrid corporate or bank subordinated debt)
• Maximum 20% in bonds issued in non-base currency, EUR hedged
In addition, two other major changes have been implemented:
• a USD share class has been created in order to take advantage of cross-currency hedging opportunities for investors
• the management fee has been reduced from 0.75% to 0.60% (standard share class) and from 0.45% to 0.30% (institutional share class)
The aim was to ensure the Fund’s profile and investor terms were updated to reflect current market conditions.
A copy of the shareholder circular providing further details regarding the updates which have been incorporated within the Fund’s supplement can be accessed here; https://www.eisturdza.com/funds/fund-documents.
Please contact Adam Turberville, Head of Marketing & Client Relations should you require any additional information or assistance on +44 1481 742380 or via email; email@example.com.