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Passive giant launches active fixed income fund

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Tracking fund giant Vanguard has launched its first low-cost, actively managed global credit bond fund in the UK.

The fund will invest in a portfolio of corporate bonds around the globe. Corporate bonds are bonds issued by companies. If all goes well, the investor receives an interest payment and their money back at the end. The fund will also invest in some government bonds and supranational organisations (such as the World Bank).

The fund has an ongoing charge figure of 0.35%, the cheapest of any active retail fund in the global credit bond category in the UK. Vanguard is well-known as a provider of tracker funds – funds that track an index – but this fund will be managed actively by a team within the group.

The top-yielding fund in the IMA Global Bond sector is the Templeton Global Total Return fund with a yield of 5.6%. The average fund is up 4.1% over one year and 19.4% over three years. However, there are concerns that bonds will not fare as well in an environment where interest rates are rising.

Paul Malloy, head of fixed income for Vanguard in Europe, said, “The case for investing in high quality, liquid global credit bonds is compelling as it can offer a reasonable income compared with other bond and equity income strategies. Another important element is the universe the fund will invest in will typically have lower volatility than high yield bonds or equities, helping to offset a portfolio’s return volatility. Investors should also pay close attention to costs, as the impact of fees is amplified in a low-yield market environment.”

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