M&G UK Inflation Linked Corporate Bond Fund portfolio

M&G Investments has today unveiled the portfolio details of its recently launched UK Inflation Linked Corporate Bond Fund. The fund, believed to be the first such fund for retail investors in the UK, is co-managed by Jim Leaviss, head of M&G's Retail Fixed Interest team and Ben Lord, fund manager.

Portfolio overview

The fund invests primarily in investment-grade UK inflation-linked corporate bonds and other fixed interest securities, such as floating rate notes.  In addition, the managers have the ability to invest in a combination of assets, including government securities and derivatives whose returns behave in the same way as inflation-linked corporate bonds.

The portfolio currently has exposure to over 150 names, including direct holdings in issuers such as Tesco, Thames Water and Toyota. The overall credit weighting is A- and the duration stands at 3.4 years.

Investments overview

The fund has direct holdings in over 30 issuers. This can be broken down as follows:

55% index-linked corporate bonds issued by blue chip companies. With approximately 20 issuers within this part of the fund, the biggest positions are in Anglian Water, EDF, EIB, Thames Water, Toyota and Tesco;

22% index-linked gilts;

7% floating rate notes (extremely short term bonds linked to money market rates issued by banks);

5% short dated conventional fixed rate bonds;

4% index-linked PFIs (Private Finance Initiatives), which pay a wider credit spread than ordinary index-linked bonds.

The remainder of the fund is invested in cash. Over time it is expected that the breakdown will alter as the economic environment changes.

In addition, exposure to credit may be achieved through synthetic positions created by stapling inflation-linked gilts to a credit default swap. Taking into account the fund's exposure to credit derivative indices, it has now exposure to approximately 150 issuers.

Ben Lord, co-manager of the M&G UK Inflation Linked Corporate Bond Fund, says: "Combining both physical and synthetic investments should give us the best chance of performing well during times when inflation is high or increasing. Although we believe the UK will continue to be in a disinflationary environment for some time, history has shown that inflation can rise very rapidly and unexpectedly.

"We understand that inflation is a real concern for many of our investors. They now have access to a credit investment vehicle that looks to deliver inflation-plus returns during inflationary periods.  It is the perfect complement to our existing range of high yield, gilt and strategic bond funds."

The M&G UK Inflation Linked Corporate Bond Fund qualifies for inclusion in an ISA. The annual management fee for Sterling A class shares is 1 per cent and the initial fee is 3 per cent. Minimum initial investment is £500 for lump sums and £10 for regular monthly contributions. IFAs can receive up to 3 per cent initial commission and annual trail payments of 0.25%.