M&G’s decision to slow inflows into its M&G Corporate Bond and Strategic Corporate Bond funds has come as a big blow to many in the industry. Star manager Richard Woolnough is a favourite with multi-managers, private investors and IFAs looking for corporate bond exposure, and so the prospect of these funds soft-closing may leave many scratching their heads.

There are a number of alternatives in the IMA Sterling Corporate Bond sector, but one that has garnered particular interest of late is the Henderson Sterling Bond.

The £482m portfolio has prospered under the management of Stephen Thariyan and Philip Payne since their appointments in April 2009. As a result, both have recently been made FE Alpha Managers, and the fund was awarded five crowns in the latest FE Fund Crown Rating rebalancing.

Performance of funds and sector over 3yrs


Source: FE Analytics

According to FE data, the fund has returned 54.02 per cent over three years, outperforming its sector average by exactly 23 per cent, and Woolonough’s £6.3bn M&G Corporate Bond fund by 20.1 per cent. Thariyan and Payne’s portfolio has been slightly more volatile than its rival, but has a lower maximum drawdown over the period.

With returns of 8.96 per cent, the fund has also outperformed its sector over one year – though falls slightly behind M&G Corporate Bond, which has delivered 11.42 per cent.

Both Henderson and M&G portfolios are yielding 3.7 per cent.

A disastrous 2008 under previous manager Philip Roantree means the fund remains bottom quartile over a five year period. Roantree – now at Querns Asset Management – lost 29.46 per cent over the 12 month period, compared to just -9.76 per cent from its IMA Sterling Corporate Bond sector average and benchmark.

Performance of funds and sector over 5yrs

 
Source: FE Analytics

However, Thariyan and Payne have turned things around, and are now clearly a force to be reckoned with.

The managers currently have a preference for investment grade bonds, which make up 94 per cent of assets under management. The vast majority of this exposure is in A and BBB-rated debt – an area which Thariyan and Payne think strikes a fine balance between quality and value.

The fund has a small degree of exposure to gilts, but at 2.2 per cent, Henderson Sterling Bond is very much a play on corporate debt rather than sovereign debt.

Top-10 positions include options in Walmart, Johnson & Johnson, HSBC and Imperial Tobacco Finance.

The fund has a minimum investment of £1,000 and a top-up of £100, and it has a total expense ratio (TER) of 1.45 per cent.

Payne also manages the Henderson All Stocks Credit and Long Dated Credit portfolio – both in the Corporate Bond sector and over £1bn in assets under management – while Thariyan heads up the FE five-crown rated Henderson Credit Alpha fund, which sits in IMA Absolute Return.