AJ Bell has removed the Royal London Corporate Bond fund from its Favoured Funds List as part of four changes to the investment platform’s buy list in the first quarter.
The Royal London fund has gained traction among institutional and retail investors in recent years, with assets growing to £1.6bn.
Explaining the decision, head of investment research Paul Angell said the increase in fund size, which has made it one of the largest active fund managers investing in the sterling corporate bond market, means the the team need to buy a higher proportion of the overall sterling corporate bond universe.
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“As an investment strategy gets larger, it usually becomes harder to buy and sell certain assets,” he said.
“Known as liquidity risk, this problem can become more pronounced in stressed market conditions, or if a fund is experiencing large outflows. So far, Royal London have managed the liquidity of this fund very effectively. This is thanks to their diversified underlying holdings, loyal investor base, and ability to internally cross trades where appropriate to best execution.
“However, despite this effective liquidity management, and the impressive returns generated in the fund, our preference is for funds that are part of a smaller overall investment franchise. We believe such funds can be nimbler with their positioning, giving them a greater chance to both capture opportunities and avoid risks in various market environments.”
Elsewhere, AJ Bell added the £1bn Schroder Asian Alpha Plus to its Favourite Funds buy list.
The Schroder strategy was added to the list due to the fund’s investment approach and management team. The strategy has been managed by Richard Sennitt and Abbas Barkhordar since 2021, having taken over from long-time manager Matthew Dobbs after 15 years.
The strategy has returned 31% over the last five years according to FE Fundinfo data, placing it ahead of the IA Asia Pacific Ex Japan average of 28.2%.
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To make room for the Schroder fund, AJ Bell has dropped Fidelity Asia from the list.
Angell said while the fund’s lead manager Teera Chanpongsang has shown himself to be a “capable investor”, the strategy has a similar approach to the Schroder Asian Alpha Plus fund.
The £557m Schroder European fund was also removed, with Angell citing concerns over the strategy’s medium and long term performance.
Angell added: “Our Favourite Funds list is under constant review, and we consider thousands of different funds, their investment strategies, the fund managers and their teams when deciding what goes onto that list.
“Ultimately, our aim is to ensure we have the highest conviction in the funds that comprise the list so that it can better deliver for the myriad needs of the different types of investors that use it.
“We made four changes in the first quarter of this year in the form of three removals and one addition, which trims down our list a little. Here we explain the changes we made between January and March of this year.”