Its Corporate Hybrid Bond Fund will invest in debt instruments that combine features of both bond and equity securities, and restrict its holdings to highly rated companies, according to a statement from the firm.
Hybrid debt typically pay coupons and yield more than senior unsecured debt and ranks higher in the capital structure than equity while sharing similar characteristics, such as having no maturity date and the flexibility to not pay its coupon — in the same way that a company might decide to not to pay its dividend.
In other words, they are preference shares.
“Corporate hybrids have features of both debt and equity securities that can provide an incremental yield advantage relative to senior unsecured debt, which is attractive to our institutional clients,” said Richard Kehoe, London-based senior high yield analyst and portfolio manager of the fund.
Their location within the capital structure provides active investors the opportunity to earn a strong [yield] premium, he added.
Kehoe reckons that demand for corporate hybrid bonds has grown significantly since 2013 where issuance has expanded beyond utilities and telecommunications companies to auto manufacturers and energy companies, among other sectors.
So far the fund has raised JPY5.1bn ($478,000) from Japanese institutional investors. It is not authorised by Hong Kong’s Securities and Futures Commission for sale to retail investors, but the managers hope to attract interest from the territory’s professional investor base.
“The strategy was developed for institutional investors in Japan looking to generate positive yields in a negative rate environment and we believe this solution will also appeal to institutional investors throughout Asia and EMEA as well,’’ said Andre Severino, global head of fixed income, in the statement.
Nikko AM manages around $36bn of fixed income assets across its business, which includes public and segregated funds dedicated to developed markets, emerging markets, local currency bonds, global credit, green bonds and money markets according to the statement.
Its only products available to Hong Kong retail investors are a Global Internet ETF launched last November, and an Asian Small Mid Equity Fund launched in January 2017. The firm provides a fuller offering in Singapore, with 33 authorised products for sale to retail investors.