Host:  Hello and welcome everyone to our live webchat on investing in strategic bonds. Sheridan and Stewart have braved the snow and are here to answer all your questions! Please submit them using the text entry box below the live image.
Stewart Cowley & Sheridan Admans:  Sheridan - Welcome to today's webchat and we are looking forward to all of the questions that you have. Stewart - I look forward to the interesting questions that we can answer for you today.
Bertie P:  What is a strategic bond fund?
Stewart Cowley & Sheridan Admans:  Stewart - With a strategic bond fund, you can use lots of levers, you can use corporate bonds, government bonds, currencies, derivatives what you have is so many more levers compared to a single asset type fund. It gives you that much more chance of performing in a range of market conditions rather than just in one.
Henry:  Why should i invest in a strategic bond?
Stewart Cowley & Sheridan Admans:  Sheridan - A strategic bond fund has the ability to be more dynamic and should be able to deliver returns on most economic conditions. As Stewart has already mentioned a strategic bond fund can invest in a wide variety of fixed interest investments and the management of which is with a professional watching markets on a daily basis and therefore able to be fluid with his or her application.
Bob:  I read in the press that corporate bo and are in a bubble, what are you thoughts and what are you doing in the fund?
Stewart Cowley & Sheridan Admans:  Stewart– Corporate bonds are not the same as equities in the telecoms bubble of the late 90’s. There is demand for corporate bonds and there is a need at the same time to keep yields slow to help companies so although headline yields may look historically low, they are actually appropriate for the current economic conditions and we would argue that they need to go even lower.
James Cable:  If inflation makes a comeback, how can managers protect investors?
Stewart Cowley & Sheridan Admans:  Stewart - First of all we dont expect inflation to come back for quite some time so it might not be something you need to consider in 2011. But is a good question. Because of the process of quantitative easing there is going to be a very strong case for a rapid rise in interest rates in the next few years. No one knows when that exact point will be, but whether at that time inflation is real or just imagined by the markets it is very likely that yields will rise rapidly. Most bond funds because of their mandate will experience capital losses at this point. Fortunately in our fund we have the capacity to actually benefit from rising yields, so if we can capture that turning point we may be able to help investors protect themselves from that environment. Interestingly our global strategic bond fund has gone from £35 million to £400 million in the past year precisely because investors are looking for this kind of ability from a fund in the future.
Rob, Yorks :  What sort of investor should consider investing in a strategic bond fund?
Stewart Cowley & Sheridan Admans:  Stewart - I think investors are very uncertain and what strategic bond funds do is offer a complimentary property aspect to an overall portfolio because they can act as a counterweight against the equity portion in volatile markets. So not only do they have return characteristics they also have a risk management role within an overall portfolio, hence their popularity. Sheridan - I echo Stewart's words, we are seeing a significant increase in strategic bond investment since the end of 2009 due to the uncertainty and fear within the markets.
George:  Why are they so popular now?
Stewart Cowley & Sheridan Admans:  Stewart - I think investors are very uncertain and what strategic bond funds do is offer a complimentary property aspect to an overall portfolio because they can act as a counterweight against the equity portion in volatile markets. So not only do they have return characteristics they also have a risk management role within an overall portfolio, hence their popularity. Sheridan - I echo Stewart's words, we are seeing a significant increase in strategic bond investment since the end of 2009 due to the uncertainty and fear within the markets.
Michael Lazenby :  What are the charges levied on Stewart's fund?
Stewart Cowley & Sheridan Admans:  Sheridan - The Old Mutual Global Strategic Bond fund has a standard initial charge of 3.5% and an annual management charge of 1%. The Share Centre is currently offering favourable terms of no purchase commission and 0% initial charge. This fund also features in our list of preferred funds, the Platinum 120.
Laila:  How much global exposure does the Old Mutual Fund offer?
Stewart Cowley & Sheridan Admans:  It is a global fund but typically over 50% will be outside the UK but that doesn't mean that all the time we have more than 50% exposed to currencies other than the pound. We have a great flexibility so that if the pound is rising agaisnt most currencies we can have the fund with no foreign exchange exposure but if the pound is falling for strategic reasons we can have a minority of the fund exposed to the pound. So if the pound falls you can get a kicker on the unit price, this is very useful because it is just another one of the levers we can pull when strategically we think it is correct.
Thomas Farley:  Can you explain to me what a bond is?
Stewart Cowley & Sheridan Admans:  Sheridan - Bonds are essentially IOU's from an incorporated company or government to an individual or corporation who has lent them money. In return for the loan, the investor will receive an amount of interest (known as a coupon payment) from the company for the period of the loan's life. If held until the end of the loan's term, the amount should be repaid in full.
Marcus :  I read that high yield bonds are the place to invest in 2011, what are your thoughts and is the fund currently exposed to one?
Stewart Cowley & Sheridan Admans:  Stewart - The great thing about running a strategic bond fund is that you can allocate to and from corporate bonds. In october of this year we brought our allocation down from about 35% down to 20% and interestingly the problems in Ireland, Portugal and Spain recently have pushed yields up in general and we now have an opportunity to strategically reallocate to corporate bonds within the fund and rebuild the portfolio back up to 35% going forward. The interesting area is high yield so we are going to recreate a well diversified area of the portfolio in high yield bonds in companies that are going to survive in what is going to be a pretty brutal economic environment in 2011. We are going to have to pick out the survivors which requires a careful credit search company by company and issue by issue.
Bryony:  How long do you recommend that the fund is invested in for a conservative return on your investment.
Stewart Cowley & Sheridan Admans:  Sheridan - For the nature of investing in funds and for many of the comments Stewart's made today with regards to the complexities of owning the right asset at the right time, we always recommend that an investor can afford to invest in a fund for a minimum of three years preferably five. However given the benefits offered by a strategic bond fund and its ability to potentially deliver returns in most economic conditions, a fund like Stewarts could be held for much longer delivering you a reasonable income and some potential for growth.
Rory:  On your factsheet you mention that the fund can be hedged back to sterling - I do not understand what this means, could you please explain in simple terms.
Stewart Cowley & Sheridan Admans:  Dollar for instance. Of course if the pound goes down against these currencies you will make a gain which is great for the unit price. But of course the opposite can be true so in order to take that volatility away or a possible decline in the unit price you can, to use a proverbial, hedge your bets. This means selling the Euro, the Dollar or the Yen to cover that exposure and that is what we mean by hedging back into the pound.
Abel Daniel :  Given the question marks that hang over further quantitate easing in the UK and the unpredictable global economics, how much thought do you give to purchase of assets in the fund based on the unpredictable undated scenarios?
Stewart Cowley & Sheridan Admans:  Answer process so we position the portfolio strategically for that horizon which means we can own assets which have maturity dates which are longer than a year. The important thing with us is to catch a turning point and strategically we think our ideas will carry us into 2011 and maybe beyond so we are comfortable owning longer dated assets.
Nostradamus:  How can one research the fund manager that is allocating the funds in these strategic bonds? Should I follow the fund or follow the manager?
Stewart Cowley & Sheridan Admans:  Sheridan - An excellent tool for measuring management perfomance can be found on Trustnet on which you will find Stewart is considered one of their elite managers accredited with the badge "Alpha Manager". We would always recommend that you follow the manager's performance rather than the fund.
Susan:  How could a strategic bond fund benefit me in an inflationary and deflationary environment?
Stewart Cowley & Sheridan Admans:  Stewart - Deflationary is associated with falling yields and amazingly one of the leading economies in the world, the USA, is heading into a strongly deflationary environment and as we know, where America goes, we follow. Although the UK and Europe have the own problems, the West are all strongly integrated. That is why we are looking for declining yields which means in bond language, rising prices. That is why the fund is fully invested in bonds right now to capture that yield decline and price rise which should propel the price upwards going forwards.
Dean:  According to Cofunds strategic bonds are currently the second highest selling funds sector - do you expect this trend to continue and will they ever match the cautious managed sector in terms of popularity with investors?
Stewart Cowley & Sheridan Admans:  Sheridan - Whilst markets remain unpredictable the strategic bond funds are likely to remain one of the highest selling sectors, as per this ever matching the cautious managed sector, only time will tell.
Olivia:  What are the top holdings within the fund?
Stewart Cowley & Sheridan Admans:  Stewart - The major holdings cost of long dated Government bonds in the US, UK and Germany. We don't hold any Spain, Italy, Portugal, Ireland or Greece as we have avoided that whole problem successfully. We want to capture that generalise yield decline in a simple way going into 2011 and the best way to do that is to use the safest and easily brought and sold bonds in the market.
Brighton Penny:  While we're on the subject of bonds - what about government bonds from troubled economies like Ireland - are these better than corporate bonds for a decent return?
Stewart Cowley & Sheridan Admans:  Stewart - Nobody knows what is going to happen with Portugal, Ireland type bonds in the future. Many of these economies face a decade of austerity given their current debt levels. That could happen, or at some point governments may attempt to wipe out part of that debt by refusing to repay, which puts risks around them which we consider to be too high at this time. What we need to see in the future is the technical resolution of this issue within Europe. We are going to get an announcement from the ECB at 2,30pm today which will partially answer this question, but even after that risks will remain high.
Callum Turner:  Sheridan, why do you like this fund?
Stewart Cowley & Sheridan Admans:  Sheridan - Stewart's performance at Old Mutual managing this strategy and at previous investment houses has been consistently exceptional, a top performer in his asset class. On the total return basis delivered attractive numbers against its sector benchmarks and the forethought given to his portfolio construction makes Stewart a manager we want to be associated with. So this along with its global reach is why this fund is within our preferred Platinum 120. This fund can also be ISA'able. As always, your attitude towards risk, the time period you are investing the money, and your objectives are key when asset allocating any investment. And not being aware of your personal circumstances it is hard to answer in this instance, we would recommend you seek independent financial advice
D. Beckham:  Do you think we will win the World Cup bid?, if so will this benefit the Fund?
Stewart Cowley & Sheridan Admans:  This is an interesting question because it is a well known phenomenon that economies that hold major sporting events experience inflation because of the rise in housing, food and construction prices both in the lead up to the event and afterwards. One only, for instance, has to look at the last world cup in South Africa where seats on aeroplanes between Cape Town and Johannesburg went from costing just a couple of hundred of pounds to over a thousand pounds and these effects tend to linger after a sporting event, so there are actually inflationary consequences surrounding events like the 2012 Olympics in London and if we win the World Cup bid a similar effect could take place. But look at Brazil which has both an Olympics and a World Cup in the space of a few years, and this can pose a major headache to economic policy centres.
Clive:  You talk about using currency fluctuations to boost performance yet you also say that the fund is hedged against currency risk - I'm confused as to whether the fund does or does not have currency risk. Can you clarify?
Stewart Cowley & Sheridan Admans:  Stewart - We have the facility to take out all currency risk but strategically against the pound we like the commodity currencies like the Australian dollar, Canadian dollar, South African rand and small amount of Japanese Yen which we expect to appreciate against sterling going forward. That is why we are not totally hedged into the base currency of the fund.
Host:  That's all we have time for today. Thanks to Sheridan and Stewart, and thanks to all of you who submitted questions, we hope you found the answers useful and informative.
Stewart Cowley & Sheridan Admans:  Sheridan - We hope this has gone someway to demystifying strategic bonds as a form of investment and i'd lke to personally thank Stewart for joining us today. Stewart - Thanks for all your questions.