Question: What will be the effect of the CYBG demerger on National Australia Bank’s (NAB) share price when it trades ex-entitlement?

Answer (by Paul Rickard): The effect is, of course, theoretical and will depend on the value of the CYBG shares.

I understand that NAB is expecting to price these at around £1.75 to £2.35 per share.

Assuming that NAB shareholders receive these shares on a 1 for 4 basis, then the theoretical price effect on NAB shares when they trade ex-entitlement should be between £0.44 and £0.59 per share, or approximately $0.92 to $1.23 per share.

Question: Following on from a recent question on fixed interest, what are some tips on selecting a decent corporate bond fund manager?

I am looking at AMP Capital corporate bond fund, but keen to understand the ways to evaluate this against others. Any advice would be appreciated, along with some “top bond manager” tips.

Answer (by Paul Rickard): The starting point is to understand the investment mandate of the fund, and if trying to compare funds, how these differ. For example, a corporate bond fund that invests only in securities rated “investment grade” will behave quite different to a corporate bond fund that invests in securities of all ratings. The former should be a lower risk fund, but probably also deliver lower returns. Apart from credit risk, the other major differentiator is duration risk – the average time to maturity of the fund’s assets.

Assuming that the funds are of the same type (credit and duration risk), then I consider these areas to differentiate:

a) performance (whether, and with what consistency, the manager has beaten the benchmark);

b) relative value for money – i.e. management fee; and

c) brand strength/reputation of manager.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.