RS Investments, a San Francisco-based investment management firm, launched three new fixed-income funds today to offer retail investors and financial advisers more options in a shifting economic scene. The three funds are: the RS Strategic Income Fund, an actively managed fund that encompasses global bonds and high-yield and investment grade securities; the RS High Yield Municipal Bond Fund; and the RS Floating Rate Fund.
The funds have been seeded with $135 million from Guardian Investor Services, which serves as subadviser and already manages RS' five other fixed-income funds.
RS chief executive Terry Otton said the decision to launch the new funds came about because the firm saw emerging opportunities in fixed income.
“We sat down and asked ourselves, ‘How is the world turning and how might it turn?' he said. “When we thought about the considerations of possibly rising inflation, the value of the dollar and the likely consequences of the growth of economies globally, we concluded that people would want to address those very issues.”
The funds will offer investors value, but with a sharp eye toward limiting downside risk, according to Leslie Barbi, head of fixed income investments for RS. She will be in charge of allocating and rebalancing assets in the Strategic Income Fund (RSIAX) fund, overseeing a six-person team of co-managers, and she noted that she and her team will be looking for attractive corporate and high-yield bonds, even though global economic growth is likely to be slower for most of next year.
“Slow growth is good enough for the corporate sector,” Ms. Barbi said. “They'll be able to take slow growth and bring it to the bottom line.” Ms. Barbi noted that she'll be more cautious, though, when it comes to the real estate sector. Before buying any bonds in that area, the co-managers will carefully dig into their structure, and they'll stick to the highest end of non-agency residential- and commercial-mortgage-backed securities.
Ms. Barbi added that the Strategic Income Fund will have a “pretty healthy allocation” to high yield, without giving a specific percentage, but she added that managers will stay away from overlevered companies and concentrate on companies rated double-B and B-minus.
While municipals have always offered tax protection, some investors are ready to take on a bit more risk, which is why RS is launching the High Yield Municipal Bond Fund (RSHMX), managed by the same team that manages the RS Tax-Exempt Fund: Alex Grant and analyst Sylvan Feldstein. “Municipals make sense,” Ms. Barbi said, “because our view is that it's highly likely taxes are going up. It's clear given the magnitude of this deficit problem that some chunk of the fix will be higher taxes.”
The last fund, the RS Floating Rate Fund (RSFLX), managed by Marc Gross and Kevin Booth, a recent hire from
BlackRock Inc., is designed to help protect investors from rising interest rates, and it will be largely focused on bank loans, Ms. Barbi said.
RS, which has fixed income assets under management of $2.4 billion, is hoping that the new funds will be attractive to investors and financial advisers who want to expand their fixed-income investments. Each fund will offer multiple share classes. Expenses for the A share class have been capped at 35 basis points through April 30, 2011, according to RS.
“Right now we're in an environment where there are plenty of good fixed-income opportunities across the board,” Ms. Barbi said.
