* Fund to invest in BB and BBB European corp bonds
* Managed against new fundamentally weighted index
By Chris Vellacott
LONDON, Jan 20 (Reuters) - Swiss private bank Lombard Odier is launching a fund investing in sub-investment grade bonds for risk averse investors looking for ways to outpace rising inflation without resorting to racy high yield credit.
The fund is named "Five B's" because it invests in BBB and BB rated European corporate bonds - so called "fallen angels and rising stars" that are ineligible for investment grade funds and unable to pay the returns demanded by high yield investors.
Kevin Corrigan, head of credit at Lombard Odier's investment management arm and manager of the fund said the launch comes in response to interest expressed by private clients but will also be marketed to institutional investors.
"With the push and pull of a pick up in global growth and at the same time, structural indebted issues across Europe in particular, what investors should be doing is looking at what we think is the sweet spot ... between BBB and BB," he told Reuters.
Having suffered stiff losses to their wealth during the financial crisis, investors are increasingly squeamish about exposing their capital to the risk of further falls.
But low interest rates alongside rising inflation is forcing many to seek higher yields normally associated with riskier investments.
Lombard Odier hopes to capitalise on this pool of demand by offering the fund that sits between two ends of the scale of credit risk.
The fund will be managed against an index developed by the bank that assigns weightings according to a set of measures, including a company's turnover, leverage and cash flow, unlike traditional indexes focused on debt alone. (Reporting by Chris Vellacott; Editing by Sinead Cruise and Jon Loades-Carter) (For the Funds Hub blog: http://blogs.reuters.com/hedgehub) (For Global Investing: http://blogs.reuters.com/globalinvesting)