View the article online at http://citywire.co.uk/wealth-manager/article/a740373
Should strategic bond funds resist the lure of high yield?
by Robert St George on Mar 18, 2014 at 15:00
The top two funds in Citywire’s Sterling Strategic Bond sector over the past three years – each having returned more than 40% through the period; their nearest competitor has delivered 35% – both run high allocations to non-investment grade bonds, but in markedly different ways.
The £883 million Royal London Sterling Extra Yield Bond fund, managed by A-rated Eric Holt (pictured), has produced 43.4% over the past three years and boasts a gross income yield 7.08% on its Z shares.
The bulk of its portfolio, 77.4%, is in high-yield debt and its largest holding is in B-rated 2031-dated Enterprise Inns paper carrying a 6.375% coupon.
Second place goes to the £851 million Artemis High Income fund, headed by the AA-rated duo of Adrian Frost and Adrian Gosden. They have returned 41.3% on a three-year view, with a present distribution yield of 5.2%.
Driving that performance has been their use of their equity allowance: 17.1% of the portfolio is in equities, with positions in the likes of HSBC. As Wealth Manager revealed last month, Artemis recently rejected switching the fund out of the IMA’s Sterling Strategic Bond sector.
The sector’s two largest funds are less gung-ho on the high-yield front. M&G Optimal Income , the £18 billion juggernaut steered by + rated Richard Woolnough, has just a 29.9% net weighting to high yield with a further 10.3% in equities. Half the fund is in investment-grade bonds and a quarter is in sovereign debt. It has returned 30.7% over the past three years.
The £3.9 billion Invesco Perpetual Monthly Income Plus fund has 17.1% in equities and 50.8% in high-yield bonds. Under AAA-rated Ciaran Mallon and the + rated pair of Paul Causer and Paul Read, it has returned 30.9% and has a distribution yield of 5.28%.
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Look up the funds
- M&G Optimal Income A Acc
- Royal London Sterling Extra Yield Bond A
- Artemis High Income R Inc
- Invesco Perpetual Monthly Income Plus Inc
Look up the fund managers
- Stefan Isaacs
- Eric Holt
- Adrian Frost
- Adrian Gosden
- Richard Woolnough
- Ciaran Mallon
- Paul Read
- Paul Causer
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