Trustnet looks at funds within the Sterling bond sectors that have been managed by the same manager since at least 2004.
The fixed income industry has proven to be a difficult area for long-serving managers to excel in recent years.
Only two ‘experienced’ managers – those who have been at the helm since 2004 or earlier – have delivered top quartile returns over the past three years in the IA Sterling Strategic Bond, IA Sterling Corporate Bond and IA Sterling High Yield sectors. This is evident from data from Trustnet.
One of the two experienced managers who have stood the test of time is FE fundinfo Richard Woolnough, who has been at the helm of M&G Strategic Corporate Bond since February 2004.
The fund – which Woolnough has co-managed with Ben Lord since 2021 – has fallen 4.9% over the past three years (to the end of May). Nevertheless, it still ranks 23rd out of 90 in the IA Sterling corporate bond sector over that period.
Fund performance over 3 years (to the end of the last month) versus sector
Source: FE Analytics
The long-term performance is also commendable, with the fund ranking in the top quartile of the sector over ten and five years.
Although the M&G Strategic Corporate Bond fund belongs to the IA Sterling Corporate Bond sector, its mandate allows Woolnough and Lord to invest up to 20% in government bonds. In addition, high-yield bonds should not represent more than 20% of the portfolio.
Analysts at FE Investments said: “The investment process starts with agreeing a view on the global economic environment and how this will impact inflation and interest rates, particularly in the UK. This helps the managers determine the appropriate level of risk for the fund and identify sectors and asset classes that offer the most value.
“Credit analysts at M&G study issuing companies in the UK, Europe and the US to identify areas of value, and the portfolio managers combine these recommendations with their macroeconomic insights to finalize portfolio positioning.”
They also noted that the fund has historically outperformed its peers when credit markets recovered, as was the case in 2017 or the second half of 2020, but lagged during selloffs, such as in 2018 and March 2020.
The other top performing fixed income fund manager is Eric Holt of Royal London Sterling Extra Yield Bond in the IA Sterling Strategic Bond sector.
Holt has managed the five-crown fund since April 2003 and was joined by Rachid Semaoune in 2019. Together they aim for a gross redemption yield of 1.25 times the gross redemption yield of the FTSE Actuaries British Government 15 Year index.
Performance of the fund over 3 years (to the end of the last month) versus sector and benchmark
Graphic
Source: FE Analytics
According to the fund’s latest fact sheet, unrated bonds and bonds rated BB or lower account for 32% and 42.6% of the portfolio, respectively. This indicates higher exposure to issuers with lower credit quality, but also higher compensation due to the associated default risk.
In terms of maturity, half of the bonds in the fund have a maturity of 0 to five years, while 31.6% of the securities have a maturity of more than 15 years.
Over the past three years (to the end of May), the strategic bond fund has returned 12.4%, ranking it fourth out of 80 in its sector.
Over the longer term, performance has been even stronger, as Royal London Sterling Extra Yield has been the best performing fund in the IA Sterling Strategic Bond sector, around 16 percentage points ahead of runner-up AXA Framlington Managed Income.
Finally, no experienced manager met our requirements in the IA Sterling High Yield sector.