Rathbones' Jones: great rotation is not on the cards just yet

Over the past 12 months, the Strategic Bond fund has posted a 9.57% return versus an 11.02% rise by the IMA Strategic Bond sector average, according to Lipper. It has a historic distribution yield of 3.4%. The Ethical Bond fund has a historic yield of 6.1% and has posted a 31.1% return over the past three years versus 30.83% by the Bank of America Merrill Lynch Sterling Corporate Bond index.

Protecting against inflation

Looking ahead, an inflation spike, powered by weak sterling could represent an unforeseen risk facing fixed income investors, Jones said.

‘Inflation is on the agenda and rates are going up, the problem is if we get a mad inflation number,’ he said.

He is seeking to provide some protection against inflation for the portfolio by having an allocation to index-linked bonds – a sector that represents about 10% of the Strategic Bond fund, which he and Coombs have been adding since the end of last year.

These recently benefited from the market reaction to the Office for National Statistics’ decision to leave the Retail Price Index unchanged. Other areas Jones is backing to help shelter the portfolio from the potential for higher inflation include utilities and floored floating rate notes.

More recently, the Strategic Bond managers opted to cut exposure to global high yield from 18% in September to 15.8% at the end of January, alongside UK corporate bonds by 3% to 30%, while they are also running a 5.5% allocation to gilts – which Jones says is to act as a risk diversifier.