Bonds have had a resurgence in the past few months as higher interest rates have pushed yields up from the floor and into attractive territory for the first time in more than a decade.
Previously, risk-averse investors were forced to move into equities to make any sort of return, or were pushed into ever-riskier bonds, but now that the 10-year UK government bond pays 4.25%, there is the potential to make good returns without taking on much risk.
However, while some investors have moved to the safety of bonds, others have withdrawn and moved into cash, which is near no-risk and can pay as much as 4.45% in some fixed-rate products.
Below, Trustnet looks at the funds in the IA Sterling Corporate Bond, Sterling High Yield and Sterling Strategic Bond sectors that took in more than £100m of new money last year and those where investors took out at least £100m.
Starting with corporate bonds, investors ploughing money into the sector had a clear focus in mind: turn towards those portfolios with short durations.
Source: FE Analytics
As interest rates rose last year, those funds that have bonds with very long durations were hit more severely. If rates rise, those with a longer maturity become less attractive relative to cash, where interest is paid annually for no risk. Those with shorter durations to maturity are less affected by this.
The most bought fund last year was L&G Short Dated Sterling Corporate Bond Index, which took in around £774m of new money from investors. It was one of five funds with a short duration tilt to take in more than £100m from investors last year.
Artemis Corporate Bond was the second most bought fund on the list, netting £363m in inflows, despite a higher duration (around 50% of the fund is invested in bonds with a maturity of 10 years or more).
Analysts at Square Mile Investment Consulting & Research said the “high-conviction fund” benefits from the management of veteran bond-picker Stephen Snowden, who has helmed it since its launch in 2019.
Source: FE Analytics
On the other side of the equation, iShares Corporate Bond Index (UK) was the most sold, with investors taking out a net £694m from the portfolio in 2022. Despite the withdrawals, it remains the largest portfolio in the sector, with £4bn in assets under management (AUM) by the end of the year.
Other popular names on the list included Aviva Inv Corporate Bond, while sustainable strategies Fidelity Sustainable MoneyBuilder Income and Rathbone Ethical Bond Fund were also among the most sold.
Turning to the IA Sterling Strategic Bond sector, the inflows and outflows were more subdued, although the funds here are smaller than their corporate bond counterparts.
Invesco Tactical Bond, Merian Global Strategic Bond, Premier Miton Strategic Monthly Income Bond and Janus Henderson Strategic Bond were the only funds in the sector to take in meaningful inflows last year.
Source: FE Analytics
Conversely, there were 11 funds where investors took out more than £100m, with Baillie Gifford Strategic Bond proving that it was not just the firm’s equity funds that were heavily sold last year.
The fund lost £205m from performance and £310m was taken out by investors, meaning its assets fell from £1.3bn to £762m.
Analysts at Square Mile rate the fund however, noting that it has a dual focus on resilient businesses and undervalued bonds.
“We believe the fund could be an attractive option for incomeseeking investors. Baillie Gifford has an experienced credit team and we have confidence that the managers will continue to follow their process and generate a good level of income for investors,” they said.
Behemoth strategies dominated the list, which included the likes of M&G Optimal Income, Jupiter Strategic Bond and TwentyFour Dynamic Bond.
Lastly, there were no funds in the IA Sterling High Yield sector that attracted more than £100m of new money from investors. M&G Global High Yield Bond came closest, with £78.6m of new money invested in the fund.
Meanwhile, there were two funds that suffered more than £100m in net outflows. CT High Yield Bond was sold off the most, losing £219m. When combined with performance effects (-£110m), the fund’s assets under management dropped from £961m to £632m.
Baillie Gifford High Yield Bond was the other name on the list. The fund’s assets dropped from £838m to £588m, with a roughly even split coming from performance (£127m) and outflows (£124m).
This is the last article in the series. Previously, Trustnet has covered global portfolios, domestic UK funds and regional markets, as well as multi-asset strategies.