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Five top performing bond funds sitting on a high yield

01 March 2016

FE Trustnet takes a look at five fixed income portfolios all with five FE Crowns that are also managed by an FE Alpha Manager

By Daniel Lanyon,

Senior reporter, FE Trustnet

 Despite a snapback in equity markets in the past few weeks bringing about some hope of a better 10 months for the rest of 2016 than the first two have been, investors will still have done best from holding bond funds so far this year.

Taken on average, the best sectors in the Investment Association universe are all fixed income with IA Global Emerging Market Bond the best due to a sector average return of 5.24 per cent followed by the IA Global Bonds sector’s 4.77 per cent gain.

While many own fixed income funds to hedge their portfolios against equity market risk, income is also a huge draw which can make a higher yielding fund attractive. Of course, though, yield is no guarantee of future pay-out levels.

Nonetheless a portfolio can temporarily move to having a higher yield due to market movements and mean a good opportunity to scoop up a bargain. With this in mind, in this article we take a look at five bond funds that currently have a high yield and also have the maximum five FE Crowns and are headed by an FE Alpha Manager.

 

GAM Star Credit Opportunities – 4.65%

First up is the £270m GAM Star Credit Opportunities fund, managed by FE Alpha Manager Anthony Smouha, since 2011.

Over this near five year period, the fund has been the second best performer in the IA Sterling Strategic Bond sector with a 50.21 per cent return.

Smouha has several decades’ worth of experience in fixed income markets, and thanks to this and his strong performance, FE’s team of analysts have included it on the FE Invest Approved Funds List.

Performance of fund and sector over 3yrs


Source: FE Analytics


The manager opts for more non-correlated fixed income strategies so as to give greater protection from the downside as a result of market shocks. For example, he tends to focus on investment grade issuers but buy bonds further down the capital structure (which also explains his fund’s high yield).

However, so far in 2016 the fund is down 1.1 per cent.

The fund has a clean ongoing charges figure [OCF] of 1.18 per cent.


Henderson Fixed Interest Monthly Income
(5.5%) and Henderson Preference & Bond (5.0%)

Next up we have two portfolios managed by Henderson’s co-heads of credit. FE Alpha Manager Jenna Barnard has been managing the Henderson Fixed Interest Monthly Income fund alongside John Pattullo since June 2011 and the Henderson Preference & Bond fund since 2006, although Pattullo has headed the portfolio since 2001.

Both portfolios have their largest weighting to investment grade bonds with some exposure to higher yielding credit and some high quality sovereign debt, aiming to deliver the highest possible income while mitigating credit risk.

Over the past five years the funds have performed relatively similarly but while Henderson Fixed Interest Monthly Income is just above the sector average Henderson Preference & Bond’s performance is slightly below it.

Performance of fund and sector over 5yrs

   

Source: FE Analytics

The Henderson Fixed Interest Monthly Income fund has a clean OCF of 0.69 per cent while Henderson Preference & Bond is slightly more expensive at 0.70 per cent.

 

 


 

M&G Emerging Markets Bond – 5.56%

Emerging markets have, in general, fallen out of favour as destinations for investor capital but this portfolio has made 9.33 per cent over the past three years while its average peer has lost more than 10 per cent – the fourth best performance in the 34-strong sector.

Performance of fund and sector over 3yrs


Source: FE Analytics

Claudia Calich has headed the fund since 2013, after joining from Invesco, since which it has been top quartile in each calendar year. However, this year the fund has moved into the third quartile.

Just over 86 per cent of the fund’s exposure is to dollar denominated debt of emerging market government bonds and credit with the rest in local currencies.

Calich is also mostly favouring government debt with more than half of the portfolio in sovereign issued bonds.

The fund has a clean OCF of 0.95 per cent.

 

 

Standard Life Investments Emerging Market Debt 5.41%

Last up we have another from the bombed out sector – Richard House’s Standard Life Investments Emerging Market Debt fund.

The fund was launched back October 2012 after House joined the firm from Threadneedle, where he was head of emerging market debt.


Since launch the fund has made 15.56 per cent, a big improvement on the 4.29 per cent loss from its average peer.

Performance of fund and sector since launch


Source: FE Analytics

Latin and Central America remain the manager’s favourite region followed by the Middle East and North Africa.

Standard Life Investments Emerging Market Debt also scores highly for alpha generation and maximum drawdown since House launched the fund.

The fund has a clean OCF of 0.82 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.