Old Mutual Global Investors (OMGI) has launched its first contingent convertibles (CoCos) strategy, the company has announced.
The Old Mutual Financial Contingent Capital Fund will be managed by Lloyd Harris, who currently manages the Old Mutual Investment Grade Corporate Bond fund, and Rob James, who is a member of the UK equity team.
The Ucits-compliant fund aims to generate total return using a combination of income and capital growth from fixed and variable debt securities issued by financial institutions such as insurers and banks.
At least 75% of the fund will be invested in high-quality CoCos with the remaining 25% split between equity instruments, cash, collective investment schemes and bonds.
The pair believe that CoCos, which were created after the financial crisis to help increase banks’ ability to absorb losses beyond their equity buffers, have a low likelihood of being converted. CoCos also typically offer lower volatility than European bank equities.
Commenting on the launch, Harris said: ‘OMGI’s fixed income funds have invested in contingent capital for some time, with the team well experienced in managing these investments.
'In our view, there is long term value in the asset class; therefore, we believe that now is an appropriate time to launch a specific CoCos fund.'
Harris added there are few opportunities to earn an attractive yield in the current market environment.
The new fund is currently registered for sale in Ireland, the UK and Singapore. OMGI will register the fund in other countries according to client demand.