More and more income-seeking investors have been turning away from the UK, according to the most recent IMA figures.

However, there are still plenty of opportunities in the bond market, albeit largely in higher yield, higher risk funds.

Marcus Brookes (pictured), head of multi-manager at Cazenove, still has a high weighting to fixed interest, at 27.36 per cent, in his multi-asset Cazenove Diversity Income fund. 

He told FE Trustnet which bond funds he believes are worth holding.


M&G Optimal Income

"We have supported this fund since launch and Richard Woolnough has proved himself to be an outstanding investor," Brookes said.

This is the largest bond position in the portfolio, making up 8.3 per cent, despite its yield slipping to just 2.67 per cent, well below the 4.55 per cent of the average fund in the sector.

Brookes is unconcerned by this fall, however, saying he backs FE Alpha Manager Woolnough to continue his strong overall performance.

In terms of capital growth, over the past five years the portfolio is the second-best performer in the IMA Sterling Strategic Bond sector, making 60.81 per cent for investors.

Performance of fund vs sector over 5-yrs


Source: FE Analytics

The £9.67bn portfolio is available with a minimum initial investment of £500 and has a total expense ratio (TER) of 1.4 per cent.


Kames High Yield Bond

Brookes has 5.19 per cent of his fund in this portfolio, making it the second-biggest bond position and the fifth overall. Data from FE Analytics shows it is currently yielding a healthy 5.38 per cent.

The £1.27bn fund is run by Philip Milburn and Melanie Mitchell and is a top-quartile performer in the IMA Sterling High Yield Bond sector over one, three, five and 10 years.

The fund has a bias towards the lower-risk end of the high yield market, preferring US over European bonds and B and BB securities to those rated CCC.

Juliet Schooling-Latter, head of research at Chelsea Financial Services, said: "We rate the team very highly. Although most of our clients want a strategic bond fund as they aren’t keeping track of what part of the cycle we’re in, we do use this for clients who need a high yield bond fund."

Since Philip Milburn took over the fund in November 2003 it has been the second-best performer in its sector, making 95.82 per cent compared with 76.16 per cent from IMA Sterling High Yield Bond.

Performance of fund vs sector since November 2003

 

Source: FE Analytics

The four crown-rated portfolio has a minimum investment of £500 and a TER of 1.31 per cent.


Invesco Perpetual Tactical Bond

Brookes says: "The managers Paul Read and Paul Causer say they only see value in European financials, everything else is over-valued."

The £271.78m fund was only launched in February 2010 and has 47.98 per cent invested in banks. The next largest weighting is in foreign government debt, at just 11.7 per cent.

Performance of fund vs sector since launch

 
Source: FE Analytics

The fund is currently yielding 3.93 per cent and its TER is 1.45 per cent.


Invesco Perpetual Monthly Income Plus

Read and Causer also run this £3.43bn fund, along with FE Alpha Manager Neil Woodford.

Over 10 years it has produced the best returns out of the 21 funds in the IMA Sterling Strategic Bond sector with a history of that length, making 170.71 per cent.

Although it sits in the Strategic Bond sector it has 17.88 per cent in equities, including positions in blue chip FTSE 100 companies GlaxoSmithKline, AstraZeneca and British American Tobacco.

Bank bonds also feature highly in this fund, with instruments issued by Lloyds, Barclays and RBS in its top-five holdings.

"A lot of our clients like it for its monthly income and it has been on our list for many years. We’re big fans of the Invesco Perpetual team," Schooling-Latter said.

It is currently yielding 6.44 per cent and is available with an initial investment of £500. The TER is 1.44 per cent.


Pimco Select UK Income Bond

This is not a very retail-friendly fund, being domiciled offshore in Ireland, although it is available through the Fidelity, Skandia, Novia and Nucleus platforms.

Brookes likes it for its exposure to residential mortgage-backed securities and he has a 3.86 per cent weighting to the portfolio.

Our data shows the fund has made 13.4 per cent since launch in February 2011.

Its TER is 1.36 per cent and investors can gain access with a minimum initial investment of £1,000.