FE Trustnet has recently examined consistent outperformers in the IMA UK All Companies and IMA Global sectors that have lower clean ongoing charges figures (OCF) than their peers.
We now look at the IMA Sterling Strategic Bond sector, which was the fourth best selling sector in June and has been persistently popular with investors.
Many investors agree that the multi-decade bull market in bonds is drawing to a close, meaning funds with nimble mandates could be a preferred option should volatility pick up.
TwentyFour Asset Management portfolio manager Eoin Walsh told FE Trustnet that the recent volatility of bond markets is just “a little taster” what will happen when interest rates start to rise.
FE Analytics shows that three strategic bond funds with OCFs of less than 0.70 per cent have outperformed their peer group average in at least seven of the past 10 years.
It must be noted that past performance is no guide to the future, as well as that a number of funds with shorter track records have also been able to consistently beat the sector.
Over ten years, the average fund in the IMA Sterling Strategic Bond sector has returned 61.26 per cent.
But which cheap funds have been able to outperform their peers in the most calendar years?
Baillie Gifford Corporate Bond
Stephen Rodger and Torcail Stewart's £384.8m Baillie Gifford Corporate Bond fund has beaten the sector’s average return in seven years out of the past decade, making a total return of 80.47 per cent over this period.
The five FE Crown-rated fund was second quartile in the sector during 2004, 2005, 2006 and 2007 before achieving first quartile returns in 2010, 2011 and 2012.
The fund was third quartile in 2013 with a gain of 2.85 per cent but has jumped into the top quartile over the year to date with a 6.06 per cent gain.
According to FE Analytics, Baillie Gifford Corporate Bond - as well as the other cheap, consistent outperformers - is more volatile than the sector.
Over ten years, the fund’s volatility is 7.17, which compares to a sector average of just 4.12 per cent and is the highest of the three funds examined.
Likewise, the fund’s maximum drawdown over ten years is 33.77 per cent, against 18.77 per cent for the peer group.
However, Rodger and Stewart made an annualised return of 6.07 per cent over the decade, compared with 4.89 per cent for the average sector member.
Baillie Gifford Corporate Bond has ongoing charges of 0.53 per cent.
Performance of fund vs sector over 10yrs
Source: FE Analytics
AXA Framlington Managed Income
George Luckraft’s £142.8m AXA Framlington Managed Income fund has an OCF of 0.61 per cent and has outperformed its peers over seven of the past 10 years.
However, on a cumulative basis it has lagged the sector over ten years, with a return of 60.48 per cent.
The fund has a large maximum drawdown over the last decade - 46.37 per cent, which is more than double the sector average.
Its maximum gain is more attractive though, standing at 35 per cent against the IMA Sterling Strategic Bond average of 21.27 per cent.
AXA Framlington Managed Income invests primarily in convertible securities, corporate bonds and other fixed income securities, with a bias to the UK.
It currently has 78 per cent in UK corporate bonds, with another 10.42 per cent in UK equities.
Luckraft’s fund was first quartile in 2006, 2010, 2012 and 2013 as well as over the year to date.
However, five FE Crown-rated fund has been fourth quartile in all three of the years it did not outperform and suffered its worst calendar year in 2008 with a 32.76 per cent loss, compared with the sector’s 13.54 per cent fall.
Performance of fund vs sector over 10 years
Source: FE Analytics
F&C Extra Income Bond
The £82.3m F&C Extra Income Bond fund, which has an FE Crown rating of four, has also outperformed its peers in seven years out of the past decade.
Over 10 years, it has has returned 68.04 per cent. Its years of outperformance came in 2004, 2005, 2006 and 2007, when it was in the second quartile, and then in 2010, 2011 and 2012 when it was in the first.
It did slip into the third quartile last year but is back in the second quartile over 2014 so far with a 4.60 per cent rise.
F&C Extra Income Bond, which is managed by Rebecca Seabrook and Chris Brils, is the least volatile of the three funds examined with a 10-year figure of 5.99 per cent.
However, its maximum loss is the largest at 24.72 per cent as is its 51.82 per cent maximum gain.
The fund’s largest sector bet is in consumer goods and services, where it has 15.9 per cent of its portfolio, followed by banking at 13.8 per cent and industrials at 12.7 per cent.
Performance of fund vs sector over 10yrs
Source: FE Analytics
