Trustnet Limited (“we”, “our”, “us” and derivatives) are committed to protecting and respecting your privacy. This Privacy Policy, together with our Terms of Use, sets out the basis on which any personal data that we collect from you, or that you provide to us, will be processed by us relating to your use of any of the below websites (“sites”).

For the purposes of the Data Protection Act 1998, the data controller is Trustnet Limited of 3rd Floor, Hollywood House, Church Street East, Woking, GU21 6HJ. Our nominated representative for the purpose of this Act is Kirsty Witter.


We collect information about you when you register with us or use any of our websites / services. Part of the registration process may include entering personal details & details of your investments.

We may collect information about your computer, including where available your operating system, browser version, domain name and IP address and details of the website that you came from, in order to improve this site.

You confirm that all information you supply is accurate.


In order to provide personalised services to and analyse site traffic, we may use a cookie file which is stored on your browser or the hard drive of your computer. Some of the cookies we use are essential for the sites to operate and may be used to deliver you different content, depending on the type of investor you are.

You can block cookies by activating the setting on your browser which allows you to refuse the setting of all or some cookies. However, if you use your browser settings to block all cookies (including essential cookies) you may not be able to access all or part of our sites. Unless you have adjusted your browser setting so that it will refuse cookies, our system will issue cookies as soon as you visit our sites.


We store and use information you provide as follows:

We may also send you emails to provide information and keep you up to date with developments on our sites. It is our policy to have instructions on how to unsubscribe so that you will not receive any future e-mails. You can change your e-mail address at any time.

In order to provide support on the usage of our tools, our support team need access to all information provided in relation to the tool.

We will not disclose your name, email address or postal address or any data that could identify you to any third party without first receiving your permission.

However, you agree that we may disclose to any regulatory authority to which we are subject and to any investment exchange on which we may deal or to its related clearing house (or to investigators, inspectors or agents appointed by them), or to any person empowered to require such information by or under any legal enactment, any information they may request or require relating to you, or if relevant, any of your clients.

You agree that we may pass on information obtained under Money Laundering legislation as we consider necessary to comply with reporting requirements under such legislation.


We want to ensure that the personal information we hold about you is accurate and up to date. You may ask us to correct or remove information that is inaccurate.

You have the right under data protection legislation to access information held about you. If you wish to receive a copy of any personal information we hold, please write to us at 3rd Floor, Hollywood House, Church Street East, Woking, GU21 6HJ. Any access request may be subject to a fee of £10 to meet our costs in providing you with details of the information we hold about you.


The data that we collect from you may be transferred to, and stored at, a destination outside the European Economic Area (“EEA”). It may be processed by staff operating outside the EEA who work for us or for one of our suppliers. Such staff may be engaged in, amongst other things, the provision of support services. By submitting your personal data, you agree to this transfer, storing and processing. We will take all steps reasonably necessary, including the use of encryption, to ensure that your data is treated securely and in accordance with this privacy policy.

Unfortunately, the transmission of information via the internet is not completely secure. Although we will do our best to protect your personal data, we cannot guarantee the security of your data transmitted to our sites; any transmission is at your own risk. You will not hold us responsible for any breach of security unless we have been negligent or in wilful default.


Any changes we make to our privacy policy in the future will be posted on this page and, where appropriate, notified to you by e-mail.


Our sites contain links to other websites. If you follow a link to any of these websites, please note that these websites have their own privacy policies and that we do not accept any responsibility or liability for these policies. Please check these policies before you submit any personal data to these websites.


If you want more information or have any questions or comments relating to our privacy policy please email [email protected] in the first instance.

Keyword Search

 Calculator Calculator
Time Zone Time Zone
You are here:  FE Trustnet     Education        Absolute Return Bonds Guide

Absolute Return Bonds Guide


Derivative instruments available to fund managers
Most absolute return bond funds make use of derivatives, a term used to describe a variety of futures and options contracts.
A wide range of bond market derivatives is available and the market is growing very rapidly, with new instruments continually being developed. Derivatives tend to be the preserve of highly experienced, professional investors and in the past it has been difficult for ordinary investors to gain exposure to this type of investment. However, the new UCITS III regulations have made it possible to launch funds for private clients that include investments in derivatives.
We have detailed below some of the types of derivatives that can be used by managers of absolute return bond funds and their potential applications.
Bond market derivatives
Bond futures contracts are employed as a method to speculate on interest rate changes. A view that interest rates will fall (and bond prices will rise) will be expressed by buying bond futures contracts. Conversely a view that interest rates will rise will be expressed by selling bond futures contracts. A fund manager may also use bond futures contracts to hedge interest rate risk by selling a bond future against a specific asset, or to express a view on the relationship between interest rates of different maturities or currencies.
For example, a view that 5 year interest rates would rise by more that 30 year interest rates could be expressed by selling 5 year bond futures and buying 30 year bond futures. A view that US interest rates would rise by more than UK interest rates could be expressed by selling Treasury (US) bond futures and buying gilt (UK) bond futures.

Options allow for more refined views on how much the market might move in either direction. The effect (negative or positive) of the market moving in the manager's favour or against him, can be greater than it would have been if he owned the underlying security.
For example, if the manager feels that the US dollar is going to weaken against the yen, he could buy a 'put' option, ie an option to sell the US dollar at a specified price in the future (a 'call' option would confer the right to buy). If the dollar did indeed weaken and the manager had an option to sell it at a higher level, then he would be 'in the money' and could sell the option for a much greater price than he had paid for it. If the dollar did not weaken by the time the option expired, then the option would be worthless and the manager could simply take the loss of the price paid for that option, known as the premium.
It should be noted that whilst the above example shows an unlimited gain and a limited loss, there are also cases of futures and options trades where the loss can be unlimited.
Currency Risk and Currency Derivatives
The forward market allows the manager to take a view on what the relative value of a particular currency will be versus sterling in the future, by agreeing a price today at which he will buy that currency at a later date. In this way, the manager can use this contract to hedge a fund's foreign currency exposure back to the base currency. In addition, currency derivatives can be used to take advantage of expected changes in exchange rates between currencies other than the fund's base currency.
For example, the manager could take a long position in the Chinese renminbi if he felt that China's currency was likely to strengthen further, or a long position in the Canadian dollar, if he felt that interest rates could rise against the backdrop of a booming economy. In contrast, the manager could take a short position in a currency that he expects to weaken.
Credit Derivatives
Credit default swaps / iTraxx indices
A credit default swap (CDS) is essentially a transaction that allows the transference of credit exposure to an issuing entity between two parties. Put at its simplest, one party is insuring the other against the risk that the issuing entity defaults. In this way, the buyer of that insurance is taking a view on the creditworthiness of the issuer.
An iTraxx index takes a group of these CDSs and so creates an index that can be bought or sold. This will therefore allow the manager to take a view on how an entire section of the fixed income credit market will perform, without actually owning the underlying securities.
For example, if the manager believes that high yield is likely to outperform other sections of the market, he can trade the high yield index. This allows him to take a view on whether the spread between high yield and other credit markets will narrow or widen. By buying this basket, he is taking a view on the performance of the underlying credits.
Previous Section «
Next Section »

Back to top of pagetop