Strategic bond funds managed by Invesco Perpetual, Fidelity and Royal London are among those that have built up some of the strongest average five-year returns over the long run, research by FE Analytics suggests.
Average five-year rolling returns are the second most commonly used metric by financial advisers, according to a survey by investment research and advisory business Platforum found. This metric comes after performance relative to the sector and ahead of the most recent three-year return.
How advisers independently review fund performance
Source: Platforum
In the latest article of the series, we looked at the rolling five-year total returns of strategic bond funds over the 50 quarterly periods spanning 1 January 2000 to 31 December 2004 and 1 April 2012 to 31 March 2017 then worked out the average.
In the following gallery, we highlight the five IA Sterling Strategic Bond funds with highest average rolling five-year gains (of the funds that have been around for at least 25 of the 50 periods) as well as revealing the top 25 according to this metric.
GS Sterling Broad Fixed Income Plus Portfolio
5yr rolling return vs sector
Source: FE Analytics
In fifth place is the £5.8m GS Sterling Broad Fixed Income Plus Portfolio, which has made an average five-year rolling total return of 39.36 per cent since its launch in 2006. The team-managed fund’s highest five-year gain over this period was 51.11 per cent; the lowest stands at 17.14 per cent. It aims to generate income with some capital growth and is designed to serve as a core holding for investors seeking exposure to sterling investment-grade bonds. However, the fund currently has 18.1 per cent of its portfolio in this part of the market, with 47.2 per cent in government bonds. There’s also 9.9 per cent in asset-backed securities, 6.7 per cent in quasi-government bonds and 5.3 per cent in emerging market debt. GS Sterling Broad Fixed Income Plus Portfolio has an ongoing charges figure (OCF) of 0.75 per cent.
Cumulative return to 31 Dec 2016 vs sector
Source: FE Analytics
Royal London Sterling Extra Yield Bond
5yr rolling return vs sector
Source: FE Analytics
Eric Holt’s £1.5bn Royal London Sterling Extra Yield Bond fund comes next with an average five-year return of 41.16 per cent over its 36 periods of track record. As its name suggests, the fund focuses on high-yield bonds – which are an inherently riskier part of the markets. The chart above reflect this: the fund posted a 24.12 per cent five-year loss in the wake of the financial crisis but its maximum gain of 166.22 per cent has been far higher than the peak seen in the average strategic bond fund. Close to half of the portfolio is in bonds rated at ‘BB’ or below with another 30 per cent in unrated bonds; banks and financial services is the biggest sector exposure, followed by structured bonds and general industrials. Royal London Sterling Extra Yield Bond has a 0.83 per cent OCF and is yielding 6.10 per cent.
Cumulative return to 31 Dec 2016 vs sector
Source: FE Analytics
Fidelity Strategic Bond
5yr rolling return vs sector
Source: FE Analytics
In third place is the £1.8bn Fidelity Strategic Bond fund, which is headed up by FE Alpha Manager Ian Spreadbury. The fund’s average five-year return over its 28 period of track record has been 42.61 per cent, with the highest standing at 62.23 per cent and the lowest 27.75 per cent. It attempts to offer a “relatively high” level of income with the possibility of capital growth. Spreadbury is known for taking a measured approach to investing and has avoided chasing yield in riskier sectors. The FE Invest team said: “The fund has tended to do extremely well in times of market stress as investors seek less risky assets. This happened in 2008 when the fund was flat, as most of its peers lost money, and in 2011 when the fund made more than its peers’ returns when riskier bonds suffered.” Fidelity Strategic Bond has an OCF of 0.68 per cent with a 2.27 per cent yield.
Cumulative return to 31 Dec 2016 vs sector
Source: FE Analytics
Artemis High Income
5yr rolling return vs sector
Source: FE Analytics
In second place we have Artemis High Income, which has been managed by Alex Ralph since February 2014; prior to this it was run by Adrian Gosden and Adrian Frost. Over the 50 five-year periods examined in this research, the £1.2bn fund posted a 42.61 per cent average total return. The highest was 127.31 per cent but the lowest was a 7.85 per cent loss. The fund holds at least 80 per cent of its portfolio in bonds, with the remainder in equities and cash. It currently has 4.2 per cent in government bonds, 22.4 per cent in investment-grade and 54.5 per cent in non-investment grade, with another 15.2 per cent in equities. FE Invest team says this could be an appropriate fund for investors seeking a high income, so long as they understand the need to take more risk to achieve this. “To obtain a higher yield, the managers buy lots of higher-yielding bonds; this exposes them to credit risk, which is historically more correlated to equities. For this reason, the fund does not suit those looking for a bond fund to diversify away from equities,” the team said. Artemis High Income has a 0.69 per cent OCF and is yields 5.59 per cent.
Cumulative return to 31 Dec 2016 vs sector
Source: FE Analytics
Invesco Perpetual Monthly Income Plus
5yr rolling return vs sector
Source: FE Analytics
Coming in first place in this study is Invesco Perpetual Monthly Income Plus with an average five-year rolling total return of 47.69 per cent. During the 50 five-year periods examined, the highest return was 120.45 per cent and the lowest a 2.90 per cent loss. The fund’s fixed income portfolio is managed by veteran investors Paul Causer and Paul Read with Ciaran Mallon looking after its equity exposure. The process behind the fund is based upon the idea that efficient markets can still sometimes overshoot and move prices away from fundamental value, creating opportunities. Square Mile Investment Consulting & Research said: “Given the managers' focus on value, the fund is likely to have a slightly more volatile return profile than similar funds, tending to outperform when corporate bond markets are rising, but underperform when they are struggling. The fund is likely to be suitable for investors who wish to access a relatively high income stream, with the potential for some possible capital upside, and who are prepared to hold the fund for medium to long periods (at least three years).” Invesco Perpetual Monthly Income Plus has a 0.72 per cent OCF with a yield of 5.18 per cent.
Cumulative return to 31 Dec 2016 vs sector
Source: FE Analytics
Source: FE Analytics