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Five nimble bond funds for your portfolio

With worries growing over liquidity in the fixed interest market, FE Trustnet takes a look at some of the more flexible options available to investors.

By Joshua Ausden, News Editor, FE Trustnet Follow
Friday November 30, 2012


Bigger is usually associated with being better with regard to bond funds. Since the fixed interest market is still traded over the counter, large bond funds with piles of money tend to have better access to the market.  

However, Kames’ Stephen Snowden’s comments earlier today suggest that it is the smaller bond funds with less than £100m assets under management that have an advantage.

He believes a severe lack of liquidity in the market will be a major problem for large bond funds and that the issue is going to get worse.

The manager says the stellar past performance that has led to mass inflows into now multi-billion pound portfolios is unlikely to be replicated because of liquidity restraints. 

With this in mind, here are five smaller bond funds for those who share Snowden’s fears: 


S&W Church House Investment Grade Fixed Interest

This £100m fund is hardly a household name, but it has a long-term track record that rivals some of the biggest portfolios out there.

Manager James Mahon has delivered 70.99 per cent over the last decade, which puts his fund in the top-quartile of its IMA Corporate Bond sector. 

The average portfolio has returned 57.05 per cent, with significantly more volatility.

Indeed, Mahon’s fund is one of the least volatile Corporate Bond funds over the period, with an annualised score of just 3.82 per cent. 

With a Sharpe ratio – which measures risk-adjusted returns – of 0.52, it loses out to only the £6.5bn M&G Corporate Bond and £5.8bn Invesco Perpetual Corporate Bond funds. 

Performance of fund vs sector over 10-yrs 

ALT_TAG

Source: FE Analytics 

S&W Church House Investment Grade Fixed Interest is also a top-quartile performer over five years, with a particularly good relative return in the year of 2008.

However, it is slightly off the pace over one and three years, and is a third-quartile performer as a result. 

As its name suggests, the fund has a bias towards investment grade securities in the corporate bond market.

Mahon has run the portfolio since 2001. It has a total expense ratio (TER) of 1.05 per cent, is available for a minimum investment of £5,000 and is listed on numerous platforms, including Transact and Nucleus.

The yield is currently 3.22 per cent. 



Templeton Global Total Return Bond

This four crown-rated £97m portfolio is a top-quartile performer in its IMA Global Bonds sector over one, three and six months, as well as over one and three years and since its launch in June 2008. 

Performance of fund vs sector since launch 

ALT_TAG

Source: FE Analytics 

It should be noted, however, that it is significantly more volatile than its sector and is susceptible to bigger movements when the markets fall. 

Templeton Global Total Return Bond has been headed up by John Beck and Michael Hasenstab since launch, who were joined by Sonal Desai in early 2011. 

In a recent interview with FE Trustnet, Hasenstab expressed his frustration at the lack of political intervention surrounding the US fiscal cliff.

The managers have little invested in the US, preferring off-benchmark positions in Asia and other emerging markets. The top-three holdings are all Korean government or corporate debt securities.

The fund has a yield of 4.59 per cent, a TER of 1.35 per cent and a minimum investment of £1,000. 


Invesco Perpetual European High Yield

Invesco is one of the biggest fixed interest players in the IMA universe, but its top-performing European High Yield portfolio, which is headed up by the highly regarded managers Paul Causer and Paul Read, has yet to bring in significant inflows. 

Much of this is to do with the lack of interest in the fund’s specific market, as it is without doubt the standout performer in its IMA Sterling High Yield sector.

According to FE Analytics, it has achieved top-decile status over one, three, five and 10 years, as well as over one, three and six months. 

Performance of fund vs sector over 10-yrs 

Name 1yr (%) 3yr (%) 5yr (%) 10yr (%)
Invesco Perp European High Yield 37.23 48.58 52.33 157.59
IMA Sterling High Yield 19.55 29.31 39.31 106.08

Source: FE Analytics   

It has just £71m AUM.

The managers are heavily overweight banks and hold positions in RBS, Santander and Barclays in their top-10.

Around 40 per cent of the fund’s assets are in BB rated securities, 31 per cent in B rated, and 15 per cent in BBB. 

It has a TER of 1.59 per cent, a minimum investment of £500 and is currently yielding 5.2 per cent. 

Read and Causer have managed the fund since June 2001.



Baillie Gifford Corporate Bond

With £184m AUM, this is the largest of those on the list. The five crown-rated portfolio, which is headed up by Stephen Rodger and Torcail Stewart, is a top-quartile performer in its Strategic Bond sector over one, three, five and 10 years, albeit with more volatility. 

Its consistent performance is no longer going unnoticed however, and it has seen sizeable inflows of late. A year ago, AUM stood at £131m.

Rodger and Stewart invest predominantly in investment grade debt. Their preferred sectors at the moment are insurance, media and banking.

Baillie Gifford Corporate Bond has a yield of 4.6 per cent and a TER of 1.04 per cent. It is available for a minimum investment of £1,000.  


Old Mutual Global Bond

This offshore-listed vehicle does not have the record to match the others listed above, but in Stewart Cowley it has one of the most respected fixed interest managers at the helm. 

This FSA Offshore Recognised portfolio, listed in Ireland, has $169m AUM. It has grown by around $10m in the last year or so.

The fund has returned 13.75 per cent since its launch in December 2009, falling slightly behind its Global Bonds sector, with more volatility.

The manager invests predominantly in AAA rated government debt, with the rest in corporates.

He tends to hold dollar-denominated paper, although he has some exposure to the krone and Canadian dollar. 

Old Mutual Global Bond has a minimum investment of £1,000 and a TER of 0.78 per cent.

Cowley, an FE Alpha Manager, also heads up the £823m Old Mutual Global Strategic Bond fund.



 
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