Top funds you’ve never heard of: Fixed interest
While big usually means better for bond funds, there are a number of relatively small portfolios that consistently top their sector.
By Joshua Ausden, News Editor, FE Trustnet
Thursday September 13, 2012
The best-performing bond funds tend to also be the highest profile and have vast assets under management (AUM). Multi-billion pound portfolios such as M&G Optimal Income, M&G Corporate Bond and Fidelity Strategic Bond are all leaders in their respective sectors.
While being bigger doesn’t always mean better in the equity market, larger funds are often seen as having an advantage over their smaller rivals in the fixed interest space, as they find it easier to trade over the counter.
However, there are a handful of relatively small funds that consistently top their sector, and may be of interest to any investor looking to diversify their portfolio away from the usual suspects.
Baillie Gifford Corporate Bond
With £151m AUM this is by no means a minnow, but it is one of the few top-quartile performers in its IMA Sterling Strategic Bond sector over 10 years that has failed to amass less than £500m.
According to FE data, Stephen Rodger’s five crown-rated portfolio has returned 84.81 per cent over the period – a figure beaten by only three funds. By contrast, the average Strategic Bond fund has returned 66.13 per cent.
Performance of fund versus sector
Source: FE Analytics
||1-yr returns (%)
||3-yr returns (%)
||5-yr returns (%)
||10-yr returns (%)
|Baillie Giff - Corporate Bond
|IMA Sterling Strategic Bond
The fund is also a top-quartile performer over three- and five-year periods – with returns of 48.11 and 35.5 per cent respectively – as well as over one, three, six and 12 months.
It is currently yielding 5 per cent – above average for its sector.
Rodger, who has been manager of the fund since September 2000, has a bias towards higher yielding securities, which goes a long way to explaining why he has been more volatile than his peer group.
In spite of its stellar cumulative record, the fund suffered badly in 2008, losing 8.54 per cent more than its sector.
Performance of fund vs sector over 10-yrs
Source: FE Analytics
Among the fund’s biggest holdings at present is a 2 per cent position in Russian Railways and 1.9 per cent in Yorkshire Water.
The fund’s income is paid out monthly. It asks for a minimum investment of £1,000 and has a total expense ratio (TER) of 1.04 per cent.
F&C Extra Income Bond
Managers Fatima Luis
and Rebecca Seabrook
target a high quarterly income by investing in a 50/50 split between investment grade and high yield bonds. Like the Baillie Gifford portfolio, this is in the Strategic Bond sector, meaning that it can invest in both corporate and government securities.
The fund is a second-quartile performer over five years, but is firmly in the top quartile over one, three and 10. It is currently yielding 5.6 per cent.
The 50 per cent weighting to non-investment grade bonds is significantly higher than the average bond in its sector, which led to significant underperformance in 2008. However, in up markets the fund is consistently one of the strongest performers.
Performance of fund vs sector over 3-yrs
Source: FE Analytics
Only 1.3 per cent of the managers’ portfolio is invested in AAA-rated bonds. Its biggest holding is currently a 2.45 per cent position in Addington, which has an 8.07 per cent yield.
The £99m portfolio has a minimum investment of £1,000 and a TER of 0.98 per cent. It has four FE crowns.
Aviva Managed High Income
The £137m portfolio has prospered since manager Andrew Lake took over in September 2010, achieving top-quartile status since then, with returns of 15.52 per cent.
This strong performance earned Lake FE Alpha Manager status in the latest rebalancing.
The fund invests in global bonds issued by companies, governments and large international organisations in developed countries. The UK is the biggest regional position, making up 39 per cent of the portfolio, followed by the US with 29.2 per cent, and continental Europe with 14.2 per cent. Lake holds predominantly BBB and BB-rated securities.
The five crown-rated fund is currently yielding 4.9 per cent, has a minimum investment of £1,000 and a TER of 1.38 per cent. The dividend is paid to investors monthly.