The Potomac Funds, an equity-focused investment manager, has moved into the fixed-income world and plans to start a high-yield fund, its first, in the coming weeks. Neil Kelly, senior v.p. and national sales manager in New York, said the high-yield fund is currently in the registration process and will likely start trading soon.
The fund will be the second fixed-income product offered by Potomac and follows the recent launch of a fund designed for investors to profit from rising yields, he said. Potomac's new inverse bond fund was started last month and invests in 10-year Treasuries and derivatives. In the so-called two-beta inverse fund, if bonds rally 200 basis points, the fund will decline 400 basis points, and vice versa. Of course, given the rising-rate environment, Kelly said it makes sense for investors to bet on higher yields now. "It's two times the risk, two times the returns," he added.
Kelly said this is the only inverse fund to use the 10-year, though others use the long bond. It makes more sense to use the 10-year because it is more representative of the market, he said. Kelly declined comment on the current size of the fund or to specify its target.
The buy-sider, which has roughly $700 million in total assets, is wading into fixed income now because it sees a need in the market, Kelly said. Potential investors in the new bonds funds include existing clients from its roster of investment advisors, small hedge funds and retail investors, as well as other fixed-income managers looking for a way to offset rising yields.