Ireland’s big mutual fund is making a strong case for investors to buy bonds in the run-up to a looming bond yield spike.
The European Fund Management (EFM) is in the process of setting up a fund based in Dublin, a country with a large financial services sector.EFM’s chief executive, Paul Hannon, told The Irish Post last month that the fund will be based in the country.
Mr Hannon said that his fund has the backing of some of Ireland’s top financial institutions, including Anglo Irish Bank and Lloyds Banking Group.
“We have a good group of institutional investors,” he said.
“The problem with bonds is the cost is too high and we have to be careful with our cash flows.”
Mr Haser said the fund is likely to offer a return of between 5pc and 10pc on a bond with a fixed rate of inflation.
“There’s a strong chance we will be able to beat the yield on the bond by a significant amount.”
If we can do that we would have a very strong case,” he added.
The fund’s fund manager, Patrick Breen, told the Post that the yield increase is due to the global economic slowdown and the fact that Ireland’s GDP is currently about 5pc below its peak in 2007.”
I think it’s quite plausible that we could be back up to 5pc in the medium term, and maybe even up to 10pc, if we manage to do what we are doing,” he told the paper.”
It is just an incredibly strong case to buy Irish bonds at that point.
“He added that the investment strategy would work in the long term, although he cautioned that the funds target for return is “at least 4pc”.
Mr Breen said that a fund with such a strong track record would not be cheap to run.”
This is a fund that we are very comfortable with and that we feel is really well-managed,” he explained.”
But it is very difficult to put together a fund like this that can generate a return at that level, and we do not want to be overly ambitious.
“The Irish fund’s focus on bonds is not new.
It has been a strong performer for several years, and its most recent return was 8.5pc last month.”EFM has always been an investment firm that invests in equities and bonds, but it has moved to more fixed income and now it is focusing on bonds,” said Mr Breen.”
Its a very different focus from a number of other fund managers, which are very risk averse.
“He said that the strategy is aimed at creating “a safe investment”.”
The objective is to generate a strong return, not just at the end of the year, but at the beginning of the next, and the bond yield will be at a very high level,” he stressed.
The EFM said it had “no plans to go back to investing in bonds”, adding that the return on bonds will be “much more sustainable”.