“The ongoing inversion of the interest rate curve allows us to find compelling yields for investment-grade bonds and high yield credit across markets while limiting duration risk,” said Stefan Isaacs, explaining the approach of the new fixed maturity bond strategy. Photo: M&G Investments

“The ongoing inversion of the interest rate curve allows us to find compelling yields for investment-grade bonds and high yield credit across markets while limiting duration risk,” said Stefan Isaacs, explaining the approach of the new fixed maturity bond strategy. Photo: M&G Investments

M&G unveiled on Thursday the M&G (Lux) Fixed Maturity Bond Fund 1, a two-year strategy targeting a 4.5% annual return.

M&G’s fixed income investment division, with assets under management totalling €144bn, announced the launch of a two-year fixed maturity bond strategy on 29 February 2024. This initiative aims to provide European investors with the opportunity to secure a 4.5% gross annualised return, the press release. The move comes as a follow-up to a successful €440m fixed maturity bond strategy that concluded in November 2023.

M&G noted that the newly introduced M&G (Lux) Fixed Maturity Bond Fund 1 is designed to offer an advantage over European sovereign bonds and cash deposits, which currently yield between 3.1% and 3.4% for comparable durations. The fund’s portfolio is globally diversified, committing at least 80% to investment-grade bonds and the remaining 20% to high-yield bonds. This composition seeks to leverage the potential in short-dated bonds amid the inversion of the interest rate curve.

The fund, classified as article 8 under the sustainable finance disclosure regulation, will remain open for subscription until 16 October 2024.

Stefan Isaacs, co-deputy chief investment officer of M&G’s fixed income team, and Matthew Russell, fund manager, will oversee the fund’s strategy. They will be supported by an in-house fixed-income research team.

Commenting on the new fund launch, Isaacs highlighted the current economic climate, noting the decline in European headline inflation towards the 2% target and the anticipation of the European Central Bank cutting interest rates later in the year. He emphasised the opportunity for investors to secure higher rates through fixed maturity bond strategies supported by robust research analysis. Isaacs also pointed out that the ongoing inversion of the interest rate curve presents attractive yields for investment-grade bonds and high yield credit across markets, minimising duration risk.

Kelly Hebert, country head for Belux at M&G, observed a strong client interest in fixed maturity strategies in anticipation of central banks’ next moves. The launch aims to meet this growing demand and follows the success of the previous fixed maturity bond strategy, noted Hebert.

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