Another Safe 10% Idea

by | Sep 28, 2001 | Archives

Jyske Bank is launching a bond fund that could pay up to 14.6%.

Here is a note sent to me by Jyske bank:

"Dear Gary,Your mails regarding the atrocities in USA were very good and helpful. As you can imagine Europeans have been shocked and to show our respect Europe came to a stand still for 3 minutes last Friday at 12 noon, it was very moving but strange as the western world was silenced only the birds could be heard.On the day when the US financial institutions begin trading again I have attached some information about our new corporate bond mutual fund. I hope you find the product interesting.  Should you need any further information or have any questions please do not hesitate to contact me.Facts about J. I. Corporate Bond Fund	Introduction period: 22 October - 9 November	Introduction price: EUR 102.00 per unit	Settlement date: 14 NovemberThe fund is launched because we expect corporate bonds to play an important role in tomorrow's bond market, and because this type of bond is an attractive supplement to a portfolio in combination with traditional bonds. By including a limited number of corporate bonds in a portfolio, it is possible to increase the potential return without increasing the level of risk to any significant extent.The USA is leading the way, but Europe is close behind. In the USA, the market value of global bonds has increased from USD 200bn in 1990 to USD 650bn in 1999. In Europe, where this market is still fairly young, however, the market value as also increased considerably - from USD 5bn in 1998 to USD 30bn in 2000. In the next couple of year, we expect the European market to reach USD 100bn. Accordingly, corporate bonds are expected to constitute in still larger part of the overall bond market. This is why, we have decided to open the new fund. this is the place to be - tomorrow's bond market.High Grade and High YieldThe corporate bond market is divided into categories according to credit risk. In general, the market falls into two categories depending on the rating awarded by the international credit rating agencies Moody´s Investor Service and Standard & Poor's. Bonds issued by investment-grade companies are known as "high-grade bonds", and bonds issued by non-investment grade or speculative-grade companies are called "high-yield bonds".Whereas the yield on high-grade bonds is typically 1-2 percentage points higher than the yield on a government bond, the yield on a high-yield bond is typically 4-6 percentage points higher. The new fund will focus on high-yield bonds.Anticipated returnAnticipated annual return at unchanged level of interest rates10.0% Anticipated return if global rates fall by 1 percentage point 14.6% Anticipated return if global rates increase by 1 percentage point 5.4%The fund will invest in a broad selection of internationally, primarily US dollar-denominated, corporate bonds. We will focus on high-yield bonds, i.e. bonds with a certain element of risk. At times, however, we ill invest in higher rated bonds such as international government bonds.A good qualityFluctuations in the price of traditional bonds and corporate bonds do not always occur at the same time. If the price of a traditional bond falls, a similar decline may not be registered in terms of corporate bonds. This is to your advantage if you combine traditional bonds with a limited number of corporate bonds as your overall portfolio risk is reduced.Potential investorsWe recommend that investors buy J.I. Corporate Bond Fund as a supplement to their overall bond investments thus mixing traditional international and Danish government bonds with high-yield market bonds. This generates a potentially a high return and offer an attractive degree of risk diversification. The base currencies of the ideal portfolios are EUR and USD respectively and will be updated together with the current recommendation inthe week of Monday 1 October."

This is one more way to diversify out of the US dollar and increase returns at the same time.

We will review bond investing at our upcoming courses. I hope to see you there. Until then, good global business and investing!