By Henry Wix-Pollard, investment research analyst at Titan Square Mile Investment Consulting and Research
The former IA Global Bonds sector was replaced in 2021 by a suite of more specific bond categories to better reflect the diverse strategies of global fixed income funds. For UK retail investors, the most flexible and widely used successor is the IA Global Mixed Bond sector. To be classified here, a fund must maintain a portfolio of at least 80% of its total assets invested in fixed interest securities.
The Global Mixed Bond classification grants the manager a wide mandate, allowing investment across a broad range of bonds in terms of issuer (governments or corporations), credit quality (both investment grade and high yield debt), and currency exposure worldwide. The managers also have the opportunity to hold a portion of the fund in equities should they wish, however this is a rare allocation in the current funds populating the sector.
This flexibility is the defining feature, enabling managers to adjust their portfolios’ risk profile, moving from safer government bonds to riskier corporate debt to seek income and capital preservation in varying global economic conditions.
Crucially, this sector requires a diversified global approach. The sector’s rules define a peer group of actively managed, internationally diversified portfolios, allowing fund selectors to compare funds that rely on the managers’ skill to allocate capital across the global bond market’s diverse risk and return opportunities.
Funds in the Global Mixed Bond sector have the flexibility to manage their currency risk dynamically and can choose to hedge or not hedge their currency exposure, provided the fund is generally diversified by asset and currency. A portfolio accustomed to a true international exposure could, however, result in increased currency risk for the sterling-based investor.
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Macro backdrop
The long period of falling and low interest rates between 2001 to 2021 was a bull bond market, consisting of high average returns from capital appreciation as yields declined. Between 2020 to 2024 we experienced rising rates to combat inflation after Covid which created some detrimental effects in the bond market, as rising rates and inflation are indeed a bond’s kryptonite.
However, this has created a silver lining for fixed income assets, that being a high starting yield resulting in a significant income stream. This, coupled with potential rate cuts, creates an interesting proposition for the global bond market. Risks remain prominent, with inflation looking sticky and elevated fiscal deficits in major economies which demand higher levels of debt issuance. This may pressure long-term yields higher, even if short-term rates are cut.
An understanding of the macro environment has become even more critical for investors, now that many are back in the fixed income markets. From stubborn inflation that dictates central bank policy, to the diverging economic growth across continents, the forces shaping bond prices are numerous and powerful. I will break down some of the key trending topics we are seeing to show how they are creating both volatility and compelling opportunities for global bond funds.
Firstly, the Fed cutting cycle. We are hearing rather contradictory expectations for rate cuts from asset management firms. Some note that they are against the grain and that the US may not have as much fiscal headroom to reduce interest rates further, while others are expecting two cuts within the next four to six months. Investors are intensely focused on the shape of the yield curve, particularly the spread between two and ten-year government bonds.
One of the most reliable indicators for predicting an economic downturn is the inversion of the yield curve. This scenario would suggest heightened recessionary risks or a sharp reduction in rate cut expectations, which would directly impact longer-dated bond demand.
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There are three characteristics in today’s markets that could mean the recent inversion seen between 2022 and 2024 may not result in a recession: the leeway for the US to cut rates further, the strength of the US consumer, and the resilience of the US economy during the hiking cycle. The yield curve may not be re inverting at present which could result in the avoidance of a recession, but this threat remains residual due to the constantly changing economic environment. Maybe, just maybe, the recessionary threat rolled off after the April 2025 sell off caused by Liberation Day.
We continue to hear that the equity rally has significant room to run. The strength of the US consumer at the upper echelon remains, and some fund managers are also noting that the lower end consumer is also proving more resilient than widely accepted. This strong demand, coupled with the concentrated and positive outlook for US corporate earnings growth, suggests the market’s upward trajectory is likely to continue. So, what could this mean for a global bond portfolio?
At present, managers are taking risk off the table through reducing credit exposure to both investment grade and high yield debt on the back of the now slightly boring repeated rhetoric that ‘spreads are tight’. The long end is looking rather less appealing in both the US and European curves, so many portfolios are focused on short dated credits, clipping carry, and keeping a low interest rate exposure.
In general, the view is spread levels reflect the strength of corporate balance sheets. This lends itself well to the expectation of the continued rally in equities. We therefore believe that many fixed income portfolios’ expected returns could well be closely aligned to their quoted yield to maturity.
How it’s performed
Year to date, the sector has delivered a 5.37% return (to 31 October 2025), placing it in the middle of its fixed income sector peers. This global sector, designed to be highly flexible across global credit and currency types, is currently being held back by two key factors: currency exposure and asset allocation. The primary headwind has been the weakening of the US dollar against a range of currencies, eg, the euro. Funds that failed to hedge this exposure saw their returns in sterling significantly eroded, a dynamic clearly seen in the IA USD Mixed Bond sector, which was among the worst performers due to its mandated US dollar concentration.
This underperformance contrasts sharply with stronger credit focused sectors. While Global High Yield and the higher quality Global Corporate Bond sectors have posted better returns to the end of October 2025, the Global Mixed Bond sector has not kept pace, mainly due to the funds that make up the sector that hold a large allocation to government bonds.
Ultimately, some funds in the sector did not capture enough of the year’s strong credit gains, and their multi currency government debt holdings were hit by the downturn in the dollar. The takeaway for a UK investor is that in a market defined by major currency shifts and hunger for credit, flexibility is useless without conviction or the quality of the management’s active decisions. This, could be a key difference between a fund thriving, or merely surviving the macro turbulence.
Funds to watch: 3-yr performance
PIMCO Low Duration Income Fund Institutional Hedged is run by Alfred Muratam, Daniel J Ivascyn, and Joshua Anderson. This fund is designed for investors who seek steady income. The fund invests in a broad array of fixed income instruments globally, which may include structured credit (ABS/MBS), corporate bonds, government debt, as well as currencies and derivates. This fund seeks to meet the needs of investors who are targeting a competitive and consistent level of income without compromising total return, while maintaining low interest rate risk (typically targeting an average portfolio duration of 0 to 3 years).
Royal London Global Bond Opportunities is essentially a highly flexible, worldwide bond fund that aims to provide a high level of income alongside capital growth. The fund operates without a formal benchmark, allowing its experienced managers, Rachid Semaoune and Eric Holt, the maximum flexibility to find value globally. The managers look across the globe in both developed and emerging markets for the most attractive opportunities and will allocate between investment grade to higher risk, but potentially higher paying, high yield, and emerging market bonds in a flexible manner. However, this exposure to lower rated bonds and emerging markets mean the fund is generally considered higher risk than a standard, purely government or investment-grade bond fund.
GS Global Dynamic Bond Plus is a highly active and flexible global bond fund that aims to generate attractive total returns (income plus capital growth) by investing across the entire fixed income universe and leveraging advanced strategies. The fund has three main risk buckets: interest rates (duration), credit, and currency. The managers will actively move between these three buckets to manage the overall risk budget. This is a sophisticated, unconstrained bond strategy that uses a broad toolkit, including derivatives and leverage, to seek returns and manage risk in all market conditions.
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Funds to watch: Assets under management
Vanguard Global Bond Index Hedged Acc GBP
Vanguard Global Bond Index Hedged’s AUM is over £18bn, and the global fixed income desk at Vanguard manages over £1.4trn. This fund employs a passive management, or indexing investment approach, and seeks to track the global investment grade bond market, specifically the Bloomberg Global Aggregate Float Adjusted and Scaled Index (Hedged GBP). It provides highly diversified exposure across government, corporate, and securitised bonds globally, aiming for high credit quality (typically AA-).
Muzinich Enhanced yield Short-Term fund’s AUM is over £7bn, and is an actively managed global fixed income fund, run by lead portfolio manager Tatjana Greil-Castro. Muzinich & Co. has focused exclusively on corporate credit since 1988 and offer expertise across the entire fixed income spectrum, including Investment Grade, High Yield, and Private Credit. This fund is very credit focused in nature, and maintains an investment grade rating of the portfolio at all times, but can increase return potential by investing in high yield (up to 40%). The fund is also short dated, which serves to protect capital against sudden changes in interest rates and credit spreads, and must keep the duration of the fund less than two years.
Dimensional Fund Advisors offers a unique philosophy. The Dimensional Global Short Dated Bond translates academic research into a structured, rules based process to systematically target factors like credit and term premiums. Dimensional believes that these factors have historically driven returns in the bond market. The managers have the flexibility to make investment decisions, such as adjusting the specific credit quality and maturity of the bonds within the fund’s less than five year maturity constraint, to try and maximise income while preserving capital. In summary, this fund is active in its implementation and decision making, but systematic in its strategy, which differentiates it from both traditional active funds and index funds.
Funds to watch: Newcomers
T. Rowe Price Global Impact Credit launched in December 2021, and we believe this is a credible impact fund, which is managed using a considered sustainable investment framework. The fund has a thematic approach which is centred on two impact pillars and six sub-pillars. As a result of the strict screening process applied, the portfolio is invested either in issuers where the majority of revenues are tied to at least one of the impact sub-pillars or in ‘use of proceeds’ bonds (green, blue, social and sustainability bonds, for example) where the capital is allocated to projects tied to at least one of the impact sub-pillars. The managers apply an active, high conviction, and research driven approach, benefiting from the large firmwide resources. This is one of the few fixed income funds that offers exposure to both social and environmental outcomes with a thematic approach.
UBS Global Green Bond ESG 1-10 UCITS ETF launched in June 2023 and is one of the few ETFs in the IA Global Bond sector. It is a passively managed strategy, and looks to replicate the price and return performance of the Bloomberg MSCI Global Green Bond 1-10 Year Sustainability Select Index net of fees. The fund invests primarily in bonds and currency derivatives, and must adhere to its 1-10 year maturity constraint, a characteristic held by its index. Specifically, this fund focuses on Green Bonds, which would include use of proceeds from bonds that finance projects that have a positive environmental impact (eg, renewable energy, sustainable transport, or pollution prevention).
Launched in January 2024, the Nedgroup Investments Global Strategic Bond is actively managed and aims to outperform the Bloomberg Global Aggregate Index, which is used as a performance target, rather than a strict formal benchmark. The strategy is focused on the core of the global bond market, prioritising liquidity and slightly more defensive assets in comparison to peers that may be more opportunistic in nature.
