The fund, which will sit in the IMA Corporate Bond sector, is expected to be available later this week and will be headed up by Ben Lord (pictured).
The manager will invest mainly in investment grade issues from the world’s major credit markets, but also high yield and government bonds. Like all M&G bond funds, performance will be driven through the management of duration and credit risk.
M&G say it has launched the fund to meet rising demand from retail clients for diversification outside of UK and European investment grade corporate bond markets.
"In the UK, global bonds remain a small section of the overall fixed income mutual fund market, but allocations increased in 2012 and M&G’s client research revealed increasing interest in the opportunity to invest in global credit markets," a spokesperson said.
Lord added: "The sheer size of global credit markets certainly opens up interesting relative value plays."
"One of these is the phenomenon of home bias, where bonds issued in a company’s home market can have tighter credit spreads than those issued in other currencies, sometimes simply because domestic investors feel more comfortable with the credit."
"We’ll look to take advantage of this by owning the bonds in the currency they trade the cheapest, as long as it makes sense to do so once the currency is hedged away."
With yet another M&G option available, investors may ask whether it is time to switch their existing fund for another holding.
FE Alpha Manager Richard Woolnough’s M&G Corporate Bond and M&G Strategic Corporate Bond funds, which both sit in the IMA Sterling Corporate Bond sector, are staple choices for investors who want exposure to debt issued by companies. They have combined assets under management (AUM) of more than £10bn and are popular with retail investors, advisers and fund of funds managers.
They have both performed very strongly versus their sector in recent years and are top-quartile performers over three and five years.
Performance of funds and sector over 5yrs
Source: FE Analytics
These two funds invest almost exclusively in corporate bonds and must have at least 80 per cent of their assets in investment grade bonds that are sterling denominated.
With bond markets under huge pressure after more than 30 years of strong returns – especially with the end of quantitative easing and rising interest rates on the horizon – an increasing number of experts are becoming wary of funds with a limited universe.
The M&G Corporate and Strategic Corporate Bond funds have themselves seen significant outflows of late, as reported recently on FE Trustnet.
While Lord says M&G Global Corporate Bond will invest predominantly in investment grade corporate bonds, he can invest across the globe and in any currency, and has the flexibility to invest in non-investment grade debt, sovereign debt and alternative debt instruments if he sees fit.
So, should investors choose the M&G Global Corporate Bond fund as opposed to the two UK-focused portfolios?
"There’s certainly an argument for that," said Mark Dampier, head of research at Hargreaves Lansdown.
"If you want the greater flexibility, I wouldn’t necessarily go for that one though, but the M&G Optimal Income fund."
The £15.8bn M&G Optimal Income fund – one of the largest in the UK market – sits in the IMA Sterling Strategic Bond sector, giving it total flexibility to invest across the fixed interest market. Again, at least 80 per cent of its assets must be sterling denominated, but it is generally seen as the most flexible of all the IMA bond sectors.
"My thinking is that if I’m to hold a bond fund, particularly at the moment, then I want the manager to have as much flexibility as possible," explained Dampier.
"The managers don’t always do the right thing, as shown by what happened in 2008, but you want them to have the chance to change things around."
"From what I understand, the [M&G Global Corporate Bond] fund isn’t going to be playing the currencies and will be essentially a credit fund, so it’s a global version of the [M&G Corporate and Strategic Corporates Bond] funds."
Dampier says he himself does not hold a corporate bond fund in his personal portfolio and questions the logic of holding one unless you are looking to actively construct a bond portion of your portfolio, or if you are particularly bullish on corporate debt.
Ben Willis, head of investment research at Whitechurch, agrees that there are big merits to holding the M&G Global Corporate Bond fund, but again thinks the Optimal Income portfolio is the better option.
"There is definitely an argument for the Global Corporate Bond fund, but you do have to remember it’s a different manager," said Willis.
"It is team-run over at M&G, but Richard Woolnough is the lead guy on the Corporate and Strategic Corporate Bond funds, and is the top of the premier league when it comes to bond investing, in my opinion."
"If flexibility is what you’re after, then I’d go for the M&G Optimal Income fund, which is also run by Woolnough."
Willis says one big advantage of the new Global fund is that it will be much smaller and more liquid than Woolnough’s three multi-billion pound portfolios, but he doesn’t see liquidity constraints as a big problem for M&G Optimal Income.
"I don’t care what they say, it must be a real headache for the two corporate bond funds," he explained.
"It’s a bit different for the Optimal Income fund though because he has a bigger universe to choose from, including equities, and can also use credit default swaps (CDS) to manage the liquidity."
M&G Global Corporate Bond is designed to take high-conviction positions across global bond markets and is not constrained by an index, but Lord will use the US dollar-hedged Barclays Global Aggregate Corporate Index as a reference for country, currency, sector allocation and duration risk.
The fund will have an annual management charge (AMC) of 1 per cent, and ongoing charges are expected to be similar to those in M&G’s other fixed interest offerings. The minimum investment will stand at £500, and it will be available for all ISA investors.
Lord will pass the management of his M&G Short Dated Corporate Bond fund to Matt Russell. He will remain co-manager of the highly rated M&G Corporate Bond and Strategic Corporate Bond portfolios, however.
Since he started running portfolios in the IMA universe in January 2007, Lord has significantly outperformed his peer group composite, according to FE data, with returns of 30.03 per cent. He has also been far less volatile, and has a far better record in down markets.
Performance of manager vs peers since Jan 2007
Source: FE Analytics
At launch, the manager says the fund will be short duration and have some exposure to high yield, both through corporates and subordinated financials.
It is likely to be broadly neutral on US dollar issues, which make up almost 60 per cent of the global universe, overweight sterling and underweight euro-denominated bonds. However, the manager says that many investment grade European issues offer compelling value.
