IRELAND – KBCAM, the Irish subsidiary of Brussels-based KBC Asset Management, has targeted local pension funds and charities with a high yield equity fund as its fears grow of a bond market bubble collapse.

David Hogarty, senior business development manager at KBCAM, said: “Bond prices are extraordinarily high. For this reason, we believe bonds are currently experiencing a valuation bubble similar to that of equity markets in the late 1990’s. At the moment, therefore, there is a high probability of a capital loss in bonds, whereas high yielding equities have potential to produce capital gain.”

He said the balanced portfolios offered by KBCAM were underweight bonds and Ireland’s fourth largest asset manager with €7.2bn of funds under management had launched a High Yield Equity Fund for Irish investors. The €37m fund had been available in Belgium since May 2003 and had outperformed its benchmark, the MSCI World index, by 1.1%.

The fund managed by Tom Mermuys picks the highest-yielding equities in each sector to remain industry and geographically neutral rather than concentrated in the oil, financials and utility sectors, but aims to provide 1 percentage point higher returns than the index. Average yield has been 4% with the potential for capital gains. It has a beta of 0.84, Hogarty said.

“High yield equities are particularly attractive given the more moderate equity market return most analysts are predicting over the next few years as this kind of investment generates a higher proportion of the expected return from sustainable dividend payments rather than relying solely on capital gain."