The Pentagon High Conviction Bond Fund

The Pentagon High Conviction Bond Fund's objective is to provide investors with attractive risk-adjusted returns through a global, unconstrained, research-led, high-conviction portfolio of corporate bonds, including convertible and asset-backed securities. 

The Pentagon High Conviction Bond Fund seeks meaningful or concentrated exposure to global credit opportunities through an investment approach that adopts a short-duration (short maturity) bias. The portfolio will typically invest in approximately 30 - 40 securities at any given time, with a focus on both fundamental bottom-up credit selection and downside protection. 

The fund targets an average annualised range of return of 8% - 12% through a combination of regular income and capital appreciation. Our target return of 8 - 12% is not an aspiration. We arrive at this range by breaking down the different sources of return as we discern them and then assigning each component a return that we believe we can achieve consistently. These components are namely issuer-specific capital appreciation (alpha), interest income (carry) and the market (beta) return. 

Over the last 10 years, we have created, on average, 3-4% from issuer specific (alpha) capital gains per annum, achieving a positive return 70% of the time across all our investments. Our interest income or carry that we generate in the fund has historically been in the 5-8% range per annum. By combing these two components or source of return we achieve our targeted return of 8-12%. Importantly it means we are not reliant on the final component of market return to achieve our goal which is pleasing.

By having a relatively short-duration bias, we keep our sensitivity to the market/beta return (which we cannot control) low. We seek our returns from factors we can control and reduce our sensitivity to factors we cannot control. Hence, we increase the probability of hitting our targeted return on average every year and reduce the probability of a loss.  This is a winning approach, and it is the reason we are arguably one of the best-performing funds in our class worldwide.