Using data from FE fundinfo, Portfolio Adviser shines a spotlight on the funds across different sectors that are smaller than £100m in size but have achieved top-quartile three-year returns relative to their average peer. This month, we look at the IA Global Mixed Bond funds trouncing their larger peers following a period where fixed-income portfolios were at the top of investor shopping lists.
T. Rowe Price Dynamic Credit
Fund size: $22.8m
Soaring interest rates sent the yields on bonds sky-rocketing in recent years and put fixed-income funds firmly on investors’ radars. Last year alone, investors poured $22.2bn (£17.11bn) into bond funds while equity portfolios suffered outflows of $7.1bn. But with so many investors piling into the space, where were they best off? Many might be surprised to know they could have made the highest return in one of the smallest funds.
T. Rowe Price Dynamic Credit beat all other IA Global Mixed Bond funds over the past three years despite being a fraction of the size of its peers. Its assets under management (AUM) of $22.8m is dwarfed by its peers, which contain a whopping £1.9bn on average. Yet this possibly overlooked fund climbed 14.5% during the three-year timeframe while its far more popular peers fell by 3.1%.
However, most of this outperformance occurred under the management of Saurabh Sud, who exited the firm in July. This change in management may leave some investors feeling sceptical as to its future returns, but new manager Steven Boothe has experience running other fixed-income portfolios for T. Rowe Price, where he has worked since 1999.
Goldman Sachs Global Income Bond Portfolio
Fund size: $97.9m
Following closely behind was the Goldman Sachs Global Income Bond Portfolio, which made a total return of 11.3% over the past three years. It is the fourth-highest performer in its peer group despite an AUM of $97.9m making it one of the smaller funds in the sector.
It has grown investors’ capital sizably over the past few years, but its main objective is providing investors with a steady income stream. By investing in bonds issued by governments and companies across the globe, lead managers Aakash Thombre and Ron Arons (who have led the fund since it launched in 2020) and deputy Sophia Ferguson (who joined them the following year) have built a portfolio with an overall yield to maturity of 6.5%.
GS Short Duration Opportunistic Corporate Bond Portfolio
Fund size: $91.6m
Another small Goldman Sachs fund that beat its larger peers was the GS Short Duration Opportunistic Corporate Bond Portfolio. Its total return of 7.5% over the past three years was 10.6 percentage points ahead of the IA Global Mixed Bond sector average.
The $91.6m fund managed by Michael McGuiness invests predominantly in sub-investment-grade global corporate bonds, which the manager says have “the potential for higher returns but higher risk”. That is because these types of bonds could be at greater risk of defaulting. The vast majority (96%) of its 298 holdings are rated below BBB, graded as speculative or highly speculative, with 74.6% of those held in unsecured high-yield bonds.
Yet holding these types of bonds can result in higher payoffs, as the fund’s three-year return exemplifies, if investors are willing to take the risk. It often offers higher yields, too, hence a yield to maturity of 7.3%.
Courtiers Investment Grade Bond
Fund size: £28.8m
Compared with some of the other funds on this list, Courtiers Investment Grade Bond’s total return of 5.7% may not seem quite so impressive – but it is notably a top-quartile performer despite being the least volatile. The fund had the lowest volatility ranking of any of its peers in the IA Global Mixed Bond sector over the past three years at just 2.2, yet still managed to give investors some of the highest returns in the category.
Unlike the GS Short Duration Opportunistic Corporate Bond Portfolio, this fund only holds investment-grade bonds with a rating of AAA or AA, which may appeal to more risk-averse investors who still want to make a higher-than-average return on their savings.
GlobalAccess Global Short Duration Bond
Fund size: $54.6m
The Barclays GlobalAccess Global Short Duration Bond fund may also catch the eye of investors with a lower risk threshold but who don’t wish to skimp on performance. Lead manager Ian Aylward and deputy Chris Bamford invest purely in short-dated bonds with a maturity horizon of under five years, and this timeframe can provide more predictability than longer-dated bonds.
This could be especially true as investors are tempted to lock in high bond yields now before further interest rate cuts from central banks. Short-dated bonds can provide slightly more certainty, but that also means they often yield less.
That hasn’t been an issue for Barclays GlobalAccess Global Short Duration Bond though, which grew investors’ savings by 3% over the past three years and offered them a distribution yield of 3%.
This article originally appeared in the September issue of Portfolio Adviser magazine
