M&G’s Richard Woolnough heads up two of those that achieved the accolade – M&G Optimal Income and M&G Strategic Corporate Bond – while Stewart Cowley and Ian Spreadbury run one portfolio apiece.
Year-on-year performance of funds vs sector from 2007 to 2011
| Name |
2011 |
2010 |
2009 |
2008 |
2007 |
| M&G - Strategic Corporate Bond |
7.87 |
8.24 |
22.53 |
3.23 |
2.79 |
| Fidelity - Moneybuilder Income |
6.83 |
8.31 |
15.93 |
-6.54 |
0.73 |
| IMA Sterling Corporate Bond |
4.36 |
7.57 |
14.31 |
-9.67 |
-0.41 |
| Old Mutual - Global Strategic Bond |
3.17 |
10.72 |
14.12 |
23.69 |
5.66 |
| IMA Global Bonds |
2.22 |
8.5 |
8.39 |
19.28 |
4.16 |
| M&G - Optimal Income |
5.68 |
8.33 |
32.68 |
-4.34 |
2.41 |
| IMA Sterling Strategic Bond |
2.71 |
8.09 |
20.75 |
-13.54 |
0.17 |
Source: FE Analytics
While small, low-profile funds tend to do better in equity-focused sectors, it appears that vast assets under management (AUM) and strong research and analyst teams are the key to consistent performance in the IMA Global Bonds, IMA Sterling Corporate Bond and IMA Sterling Strategic Bond sectors.
The £4.09bn M&G Strategic Corporate Bond fund has arguably the best record overall, achieving top-quartile status on every occasion apart from 2010. It has returned 53.62 per cent in the last five years – more than three times as much as its sector average, with less volatility.
M&G Corporate Bond, which is also headed up by Woolnough, is the second-best performer over the period, with returns of 40.4 per cent.
Performance of funds vs sector average over 5-yrs
Source: FE Analytics
While Spreadbury’s Fidelity Moneybuilder Income fund achieved the accolade as well, it has significantly unperformed M&G Strategic Corporate Bond. Moreover, with a one-year historic yield of 3.84 per cent, it is yielding slightly less than Woolnough’s vehicle.
Old Mutual Global Strategic Bond is the only fund in the IMA Global Bonds sector that has beaten its peer group in each of the last five calendar years, although it is consistently a second-quartile performer.
It is the 10th-best performing fund of its kind over a cumulative five-year period, with returns of 72.85 per cent. The less consistent M&G International Sovereign Bond and Schroder International Bond funds have both returned around 90 per cent during this time.
Woolnough’s M&G Optimal Income fund is the second-largest bond fund in the entire unit trust and OEIC universe over five years, with £5.45bn AUM. The portfolio has consistently been able to achieve top-quartile status in both rising and falling markets, and as a result is the best-performing fund of its kind over five years.
Performance of fund vs sector average over 5-yrs
Source: FE Analytics
Cowley’s £558m vehicle is the only one of the four that has less than £1bn AUM, although it is still larger than the average bond fund.
With 12 funds and a total AUM of £18bn, the M&G bond range is the largest and most established on the market. Fidelity’s six bond funds have £5.5bn AUM.
Rob Gleeson, investment product consultant at FE, says well-established bond funds have an automatic edge over their smaller counterparts.
"The bond markets are much larger than the equity markets; every company on the FTSE 100 probably has hundreds of different bonds in issue, so it obviously takes much more resources to analyse these markets and identify attractive securities," he explained.
"Another problem is that many issues are thinly traded and much of the corporate bond market lacks liquidity. Large funds are usually much better placed to benefit from private placements and new issues rather than rely on what’s being traded."
No funds in the IMA Sterling High Yield or the two gilt-focused sectors have managed to outperform in every calendar year between 2007 and 2011, although Baring High Yield Bond came extremely close, outperforming every year apart from 2009.
In the seventh instalment, FE Trustnet will examine the most consistent funds in smaller companies sectors. The fifth study in the series found that 11 multi-asset funds beat their sector average in each of the last five calendar years.