More than 70 per cent of respondents said they would prefer a fund that protects them better than its peers in a falling market to one that outperforms in a rally. Perhaps as a result of that caution, IMA data shows funds with a strong bias towards fixed interest have been dominating the best-sellers list in recent months.
FE Trustnet looks at the three most popular bond sectors among retail investors for the funds that have provided both the best downside protection and strong gains over the past five years.
Sterling Corporate Bond
This was the highest-selling retail sector in July, according to IMA figures, as it was for eight out of the past nine months.
M&G Corporate Bond and M&G Strategic Corporate Bond, both run by FE Alpha Manager Richard Woolnough, have experienced huge net inflows this year and each currently holds more than £5bn in assets under management.
Data from FE Analytics shows they are both also among the best performers in falling markets.
Max drawdown, which measures the most investors could have lost if they had bought and sold a product at the worst possible moments, stands at 39.8 per cent for the FTSE 100, but just 5.46 per cent for M&G Strategic Corporate Bond and 5.76 per cent for M&G Corporate Bond.
M&G Strategic Corporate Bond made 3.23 per cent in 2008, the best returns of all the funds in the sector, while equity investors were nursing losses of 28.33 per cent on the FTSE 100. The fund is also the best performing in the sector over five years.
M&G Corporate Bond performed slightly worse, with one possible reason being that it is not allowed to purchase gilts.
For those investors who want an even more cautious portfolio, Standard Life AAA Income has the lowest max drawdown in the sector, at 3.85 per cent.
It was another of only four funds to record a positive return in 2008, although gains over five years of 26.79 per cent put it around the sector average, unlike the two M&G funds, which are top quartile over that time.
Performance of funds vs sector over 5-yrs
Source: FE Analytics
Strategic Bond
The cautious nature of NFU Mutual Gilt and Corporate Bond is evident from its calendar-year performance.
While it returned top-quartile gains in the falling markets of 2011 and 2008 – when only five funds made a positive return – it is in the bottom quartile in 2009, 2010 and 2012, years when the stock markets finished up.
Nonetheless over five years its returns of 37.33 per cent put it in the first quartile of the sector.
FE Alpha Manager Ian Spreadbury’s Fidelity Strategic Bond is another fund in the top quartile for returns and lowest max drawdown.
It lost just 0.29 per cent in 2008, the sixth-best result in the sector.
L&G Dynamic Bond, run by FE Alpha Manager Richard Hodges, has recorded the highest returns of any fund in IMA Sterling Strategic Bond, making 62.63 per cent over the past five years.
Its max drawdown is higher than the other two funds in its sector, but the figure of -9.06 per cent is top quartile for retaining capital over this difficult period.
Performance of funds vs sector over 5-yrs
Source: FE Analytics
IMA Mixed Investment 20-60% Shares
The standout fund for protecting capital in this sector is CF Ruffer Total Return, managed by FE Alpha Managers Steve Russell and David Ballance.
The fund is the sector’s top performer over five years, having returned 59.22 per cent to investors over that time.
Not only is the fund’s max drawdown – at 7.72 per cent – the lowest in the sector, but the fund managed to make 20.88 per cent in 2008 when the average fund lost 15.84 per cent.
CF Cautela also made money in 2008, although it was a more modest 2.23 per cent, while its max drawdown is 9.65 per cent.
The fund is the second-best performer in the sector over five years.
AXA Global Distribution was flat for 2008, ending the year at the same value it started. In terms of both lowest max drawdown and five-year performance, it is top quartile.
Performance of funds vs sector over 5-yrs
Source: FE Analytics