High yield bond funds must invest at least what percentage of assets in sterling-denominated fixed-interest securities?

High yield bond funds must invest at least what percentage of assets in sterling-denominated fixed-interest securities?

• A. 50%
• B. 60%
• C. 70%
• D. 80%

Answer: (D)

The key point here is how much of a high-yield bond fund’s portfolio must stay in sterling-denominated fixed‑interest securities to limit currency risk for UK investors. Regulators require a large majority of assets to be in GBP fixed‑income so the fund’s income stream and risk profile align with sterling exposure. That minimum is 80%, meaning at least four-fifths of assets must be in GBP fixed‑rate bonds. The remaining up to 20% can go into other assets, including non‑sterling exposure, but the fund’s core remains GBP fixed‑income to maintain the expected risk/return for a sterling investor base. Choices with lower percentages would permit too much non‑GBP or non‑fixed‑income exposure, which would increase currency and volatility risk and drift away from the intended mandate.

The key point here is how much of a high-yield bond fund’s portfolio must stay in sterling-denominated fixed‑interest securities to limit currency risk for UK investors. Regulators require a large majority of assets to be in GBP fixed‑income so the fund’s income stream and risk profile align with sterling exposure. That minimum is 80%, meaning at least four-fifths of assets must be in GBP fixed‑rate bonds. The remaining up to 20% can go into other assets, including non‑sterling exposure, but the fund’s core remains GBP fixed‑income to maintain the expected risk/return for a sterling investor base. Choices with lower percentages would permit too much non‑GBP or non‑fixed‑income exposure, which would increase currency and volatility risk and drift away from the intended mandate.