HSBC bonds are the largest investments in the fund. Mr James said the bonds yield between 5.5 and 6 per cent, which would be a yield typically associated with the high yield bond market, yet are issued by HSBC, which is a more solid company, in his view, than those typically found in the high yield bond market.
The fund manager said there are presently only a handful of funds in the world focused on buying CoCo bonds in substantial quantities, creating an opportunity for Old Mutual Global Investors.
Investors such as Charles Plowden, managing partner at Baillie Gifford, have said they are “unlikely” to ever own bank shares again, as they find the risks to be difficult to price.
Philip Milton, an adviser at Philip Milton and Co. in Devon said: "We do like general convertibles and have a few already – including the JPM Convertible Investment trust.
"The Old Mutual Financials Contingent Capital fund is a good yield so a combination of good income, some capital protection and opportunity for conversion makes it attractive and yes, we could well consider 5.8 per cent is a good yield.
"All I might say is that it could be better simply being a convertibles’ fund with a financials’ emphasis but not exclusively as otherwise it could be a little too specific being just banks and CoCos. That said, the yield would be likely to fall as a consequence."
David.Thorpe@ft.com
