Investors looking for diversification away from this group, and for a fixed interest fund that offers something a bit different, may want to consider one of the following:
Smith & Williamson Short Dated Corporate Bond
The Bank of England has held its base rate at the historic low level of 0.5 per cent for more than three years and has hinted that it will not raise it before 2014.
With the International Monetary Fund now calling for a further cut in the interest rate, the Smith & Williamson Short Dated Corporate Bond fund could prove a suitable haven for investors' cash.
It is domiciled in Ireland and, as a result, doesn’t sit in any of the Investment Management Association’s sectors. This means it may escape investors’ search filters.
The fund favours large multi-national corporations with recognisable brands in relatively boring but safe consumer staples and other low risk sectors.
These quality assets will command a higher price if the situation in the eurozone escalates or the Bank of England is forced to cut rates further. Managers Chris Lynas and Ian Kenny have resisted the temptation to take attractive yields in areas such as financials and Europe.
The fund has recently achieved a three-year track record, in which it has returned 17.54 per cent over the last 36 months compared with 2.49 per cent from its cash benchmark.
Performance of fund vs benchmark over 3-yrs
Source: FE Analytics
Lynas told FE Trustnet back in February that rates were likely to fall again before they moved higher.
Artemis High Income
Investors looking for something a bit racier with exposure across all fixed income asset classes may wish to consider a Strategic Bond fund such as Artemis High Income.
It is headed up by FE Alpha Manager Adrian Frost who also runs the highly rated Artemis Income fund.
Frost’s approach is more aggressive than that of the Smith & Williamson fund. He believes that there is little value in government debt and prefers investment and non-investment grade corporate bonds.
The relative strength of corporates in terms of balance sheets as well as earnings should mean that default rates remain lower than the economic climate would normally dictate.
"Frost has a fantastic reputation and is a manager I use a lot," said Kerry Nelson, managing director of Nexus IFA. "He is regarded principally as an equity manager by most people but there is a lot of cross-pollination of ideas within the teams at Artemis."
The fund also has around 20 per cent in equities, the maximum permitted for a Strategic Bond fund by the IMA.
"On a discrete annual performance basis the fund has been superior to a lot of the other fixed income offerings out there and Frost is a manager who sticks by his approach through thick and thin. The strategy is probably best suited to rising markets."
According to data from FE Analytics the fund has returned 79.2 per cent over the last decade. Only Fidelity Extra Income and Invesco Perpetual Monthly Income Plus have performed better.
Aberdeen Emerging Markets Bond
The hunt for income has widened in recent years as investors have diversified their exposure away from the UK.
The reputation of Aberdeen's emerging markets team is second to none and, along with First State, its funds in this space are head and shoulders above the competition.
The group has now entered the emerging market fixed interest space as well. Aberdeen Emerging Markets Bond only opened in March 2011 but is already showing signs of promise, returning 8.02 per cent since launch compared with 4.98 per cent from the average fund in the Global Bond sector.
Rob Morgan, fund analyst at Hargreaves Lansdown, has been impressed with the way the fund has started.
"We’re a little lukewarm on the sector itself because it’s gone through a period of very good performance and it is debateable whether it is going to be able to maintain this," he said.
"However, this is certainly a fund we’d look at if we become more positive. The management are very strong and experienced and though it’s a separate process to the equity team, it has the same culture."
"It’s certainly one we’ll be keeping an eye on," he finished.