Our data shows that 43 multi-managers count the £19.6bn portfolio as a top 10 holding, which is a far higher number than any other fund on the list.
With bond prices expected to fall over the coming years as the global economy recovers from the financial crises, it is interesting to note that fund of fund managers seem to favour portfolios where the manager has the greatest degree of flexibility within the fixed income market, as strategic bond funds such as L&G Dynamic Bond and Jupiter Strategic Bond also feature high up on the list.
Source: FE Analytics
However, given M&G’s large and very capable fixed income team, Woolnough’s strong track record and its sheer size at close to £20bn, it is no real surprise to see that Optimal Income is so popular with fund managers.
Two of Woolnough’s most high-profile fans are Robin McDonald and FE Alpha Manager Marcus Brookes, who head up the Schroder – formerly Cazenove – Multi Manager range. They count it as a top 10 holding in their Schroder MM Cautious Managed, Diversity, Diversity Income and Strategic Balanced funds.
The managers of the Santander and Threadneedle multi-manager ranges also hold it across a variety of their funds.
Woolnough launched the M&G Optimal Income fund in December, having built up a decent track record running the M&G Strategic Corporate Bond and M&G Corporate Bond funds – both of which also feature on the list of most popular fund fixed income portfolios.
According to FE Analytics, it has been the best performing portfolio in the IMA Sterling Strategic Bond sector since its launch with returns of 85.7 per cent. The average fund in the sector has returned just 38.67 per cent over that time.
Performance of fund versus sector since Dec 2006
Source: FE Analytics
M&G Optimal Income has also beaten the sector over rolling one, three, five and seven year periods.
Those returns have been consistent as well, given that the fund has only underperformed against the sector in one discrete calendar year since its launch, which was in 2012 when in returned 12.91 per cent while the sector returned 13.39 per cent.
That return profile has helped its capital preservation characteristics as our data shows it has been a top decile performer for its annualised volatility, maximum drawdown, downside risk and Sharpe ratio since its launch. The issue for the future, however, is the funds massive AUM.
Woolnough has, on many occasions, defended the size of the portfolio though he has admitted that the now substantial amount of money he is running is beginning to affect his day-to-day management.
The fund also yields 2.7 per cent, which is lower than the average fund in the sector.
The second most popular fixed income portfolio is L&G Dynamic Bond. All in all, 25 funds count it as a top 10 holding and they include portfolios managed by Architas, Santander and Thesis.
Like M&G Optimal Income, the £2bn L&G Dynamic Bond fund has also performed well since its launch in April 2007.
It has been the sectors second best performer over that time with returns of 80.08 per cent and the only fund to have beaten it is M&G Optimal Income.
However, the concern for the fund’s unit-holders is that FE Alpha Manager Dickie Hodges, who had managed the portfolio since inception, has recently departed. The new manager is Martin Reeves, who also runs L&G High Income.
Nevertheless, as FE Trustnet recently highlighted, Reeves says he will continue to manage the portfolio in a similar fashion to Hodges.
Sticking in the IMA Sterling Strategic Bond sector, FE Alpha Manager Ariel Bezalel's Jupiter Strategic Bond fund is the third most popular fixed income portfolio as its features in 24 fund of funds’ lists of top 10 holdings.
They include FE Alpha Manager Bill McQuaker’s Henderson Multi Manager Diversified fund, Richard Scott and Daniel Lockyer’s PFS Hawksmoor Distribution and Vanbrugh funds and portfolios within the highly rated Jupiter Merlin range.
It too has been the best performing portfolio in the IMA Sterling Strategic Bond sector since its launch, which was in June 2008, having delivered a return of 83.11 per cent which is comfortably better than the returns of its iBoxx Sterling Non-Gilt All Maturities benchmark.
Performance of fund vs sector and index since June 2008
Source: FE Analytics
At 5.6 per cent, the £1.9bn Jupiter fund has one of the highest yields in the sector and the manager has recently been buying into the European periphery such as Greek and Cypriot debt.
The study showed that Kames, the Scottish based asset manager, is also a popular group with multimanagers.
Both their Investment Grade Corporate Bond and High Yield Bond funds feature on the list as they are top 10 holdings with 19 and 15 fund of fund managers, respectively.
Kames High Yield Bond, which is headed up by Philip Milburn and Claire McGuckin, is the only member of the IMA Sterling High Yield sector to feature on the list, with Threadneedle High Yield Bond and SWIP High Yield Bond narrowly missing out.
Both funds have performed well, with Euan McNeil and Stephen Snowden’s Kames Investment Grade Corporate Bond having delivered top quartile returns in the IMA Sterling Corporate Bond sector over cumulative one, three, five and 10 year periods.
The other most popular corporate bond funds are Fidelity MoneyBuilder Income, SWIP Corporate Bond Plus and the passively managed Blackrock CIF Corporate Bond fund.
