Since reaching its peak size of £9.7bn in August last year, the Dynamic Bond fund, run by Ariel Bezalel (pictured), has shrunk considerably and was £8.3bn at the end of March.
But Ryan Hughes, head of active portfolio at AJ Bell, notes that “performance is flat over that period so that clearly is all outflow”.
By contrast, a spokesperson for Jupiter confirmed that its Strategic Bond fund, which is a mirror version of the fund for UK investors, has seen net inflows year-to-date.
The Jupiter Dynamic Bond fund returned -1.27% in euros between 1 August, when the fund peaked in size, and 29 March, dipping into negative territory at the end of December. Jupiter’s Strategic Bond fund, meanwhile, ended the same period with sterling returns of 0.24%, meaning it outperformed its Sicav counterpart by 1.5%.
Both funds were middle of the pack when compared with the performance of their peers, with the Dynamic Bond fund finishing 135 out of 316 funds in FE’s offshore Fixed Interest Global sector and the Strategic Bond fund at 36 out of 68 funds in the Sterling Strategic Bond category.
Hughes says the difference in performance isn’t material enough to explain the discrepancy in net flows between the two strategies.
Even after factoring in year-to-date performance, which sees the Dynamic Bond fund down -1.89% and Strategic Bond fund down at -1.21%, Hughes says this is “nowhere near enough to trigger a large exodus from a strategy by a large number of investors, particularly given the long-term track record of the strategy which has been absolutely fine and in line with peers for a long period of time”.
Instead he attributes the recent outflows to “a big one-off hit” from a large institutional client as opposed to “wholesale selling across the board”.
In its first quarter update, Jupiter mentioned that “one long-standing institutional client” had withdrawn cash and rebalanced their portfolio but this was counted separately toward its segregated mandates net flows for the quarter of -£306m.
A Jupiter spokesperson said “performance has been a factor” in the level of outflows sustained by the Dynamic Bond fund, adding that Bezalel’s decision to adopt a more cautious stance had possibly been a turn-off for some investors.
Although European investors are known for having a more cautious risk appetite, the spokesperson said “typically clients have opted to asset allocate away from fixed income, often into even lower risk product.”
Asian clients, meanwhile, had been opting “for riskier asset classes or for more credit heavy/higher risk bond funds”.
Easy come, easy go investors
But Darius McDermott, director of Chelsea Financial Services, thinks there is an even simpler explanation, namely the “different buy and hold patterns with our European brothers”.
“UK investors tend to be buy and hold particularly if a fund has a bad quarter or a bad year, it tends not to be that we go running off and selling it at the first opportunity.
“My experience of overseas investors, such as people that would have been in the Dynamic Bond Sicav, is that they’re just much flightier, they’re much more easy come, easy go.”
It’s a phenomenon that McDermott says he has seen play out many times before, recalling the redemptions that the M&G Optimal Income fund suffered previously, “a big chunk” of which came from Europe.
He remembers another well-known European equities fund manager who had a similar problem over a decade ago. After one particularly bad year of underperformance, said manager went from having a £1bn and €1bn fund to a £1bn and €100m fund.
“The fund performance had been equally bad in both versions and yet UK investors stayed loyal because they know the quality of the manager,” says McDermott.
“Ariel has underperformed a bit, but he has been honest with his investors and said he is very cautious on his asset class. So, he has been defensively positioned and as you might expect, a lot of people are a bit negative on bonds, but you have to hold some, you might want a bond fund that you know is going to protect you if there is a big rate rise cycle.”