By Martin Ward, senior investment research analyst, Titan Square Mile
As at the end of March 2026, the IA Sterling Strategic Bond sector consisted of 90 funds. The IA Sterling Strategic Bond sector continues to appeal to investors looking for a flexible way of accessing fixed income, particularly those who may prefer to leave the asset‑allocation decisions to experienced managers rather than try to navigate bond markets themselves. The sector offers managers the freedom to adjust duration, credit exposure and portfolio construction as conditions evolve, rather than being tied to a narrow benchmark at the wrong point in the cycle.
However, the inherent flexibility within the sector also explains why the sector can be difficult to generalise. Funds sitting within the IA Sterling Strategic Bond peer group can look markedly different from one another, with returns driven less by the sector label and more by manager philosophy, risk appetite and implementation. Some strategies are firmly income‑focused, others prioritise capital preservation or total return, while approaches to credit, duration and derivatives can vary significantly. This is also evidenced by the wide and varied benchmarks used by managers, rather than the typical one or two used in global equity markets.
As a result, dispersion is a persistent feature within the sector. The same flexibility that allows skilled managers to add value can equally work against managers if decisions are made in error or are mistimed. This reinforces the need to thoroughly review the underlying components within strategies and understand what a fund is trying to achieve, how risks are managed and where returns are expected to come from. Some managers will look to harvest returns from credit, whilst others may look to use interest rate exposure as a potential lever of returns. Strategic bond funds can play a useful role in portfolios, but the sector should be viewed as highly heterogeneous rather than homogeneous.
Macro backdrop
Focusing on the more recent macro backdrop, 2026 opened against a cautiously improving backdrop, with signs that the inflation shock of recent years was continuing to fade, albeit unevenly. In the UK, consumer price inflation eased to 3.0% in January, down from 3.4% the previous month, offering the Bank of England some limited breathing room. Policymakers opted to hold the policy rate at 3.75% at both the February and March meetings, balancing still‑elevated inflation against a softening growth outlook and a labour market that was beginning to lose momentum. GDP data for the final quarter of 2025 showed the economy expanding by just 0.1%, leaving policymakers wary of tightening conditions unduly.
Across the Atlantic, the US Federal Reserve held rates in a 3.5 to 3.75% range, acknowledging resilient economic activity but also flagging stalled job growth and rising uncertainty. The European Central Bank also stayed on hold, with inflation on a gradual path back towards target. Early in the quarter, the consensus view was that policymakers would proceed cautiously, responding to incoming data rather than committing to an aggressive easing cycle.
Financial markets initially responded constructively. Corporate earnings season delivered a series of positive surprises, particularly from technology companies, where guidance pointed to improving revenue and profit growth. A record number of information technology firms issued positive outlooks for the first quarter, suggesting that heavy investment in artificial intelligence infrastructure was beginning to translate into tangible commercial returns.
That optimism proved fragile. In late February, geopolitical tensions escalated sharply as conflict between the US, Israel and Iran intensified, culminating in Iranian military action that disrupted key energy infrastructure and shipping routes across the Middle East. The Strait of Hormuz, through which around one‑fifth of global oil and liquefied natural gas flows pass, became a focal point for market anxiety. Energy prices reacted quickly. Oil surged above $100 per barrel, with Brent crude reaching $104 before easing as tentative ceasefire discussions emerged. The impact was felt most acutely in Europe, which is more heavily reliant on Middle Eastern energy imports, pushing regional energy prices sharply higher.
The shock forced a re-assessment of macro expectations. Central banks revised inflation forecasts upwards, with the Bank of England warning that consumer price inflation could rise to around 3.5% by mid‑2026 if energy prices remained elevated. Growth forecasts, by contrast, were trimmed. Policymakers found themselves in an uncomfortable position: inflation risks were re‑emerging just as economic momentum was fading, reducing the scope for rate cuts that markets had been pricing in at the start of the year.
These dynamics fed directly into bond markets. Government bond yields, which had drifted lower through January and early February, rose sharply following the energy shock. UK 10‑year gilt yields climbed above 4.9% by late March, levels not seen since before the global financial crisis, while US Treasury yields moved higher in tandem. Credit markets also saw volatility, with spreads widening modestly from historically tight levels, though without signs of disorderly stress. Against this backdrop, fixed income investors were once again reminded that the path ahead is likely to remain uneven, with outcomes hinging on how successfully policymakers navigate the trade‑off between inflation control and supporting growth.
How it’s performed
Reviewing performance over the most recent three‑year period to the end of March 2026, the average fund in the sector has generated a cumulative gain of +18.4%, reflecting a period during which many managers were ultimately rewarded for taking risk within fixed income portfolios rather than remaining anchored to more defensive positioning.
At a broad level, performance over this period has followed a relatively intuitive pattern across asset classes within fixed income. Global high yield has outperformed global investment grade credit, which in turn has beaten UK gilts. Carry has therefore been an important contributor to returns, particularly in an environment where yields reset meaningfully higher following the inflation shock of 2022, and where credit spreads have been relatively tight. Perhaps less intuitively, UK gilts have also been the most volatile of these asset classes over the most recent three‑year period, reflecting the volatility seen in rates markets.
As is often the case in this sector, dispersion between funds has also been pronounced. The best‑performing strategy has delivered returns just shy of 60% over the most recent three-year period, supported by a clear bias towards credit. At the other end of the spectrum, the weakest fund has delivered a negative return and has been more heavily exposed to government bonds and interest‑rate risk.
Funds to watch: Three-year performance
The sector’s best performing fund over the period is the Titan Square Mile A-rated Man Dynamic Income, managed by Jonathan Golan. This is a credit focused fund, which has the bulk of its assets in sub-investment grade securities. Strong performance has been underpinned by a disciplined, bottom‑up approach to credit selection, which focuses on owning attractively valued bonds where the income on offer, in the managers opinion, more than compensates for the risks taken. Rather than relying on broad interest‑rate or market moves, the fund seeks to generate returns from company‑specific credit improvements. Perhaps tellingly, the fund also now features prominently in the sector from an AUM perspective, sitting just north of £5BN in assets.
Titan Hybrid Capital Bond also features among the better performing funds over the period. The strategy is managed by Peter Doherty, who has been at the helm since the fund’s launch in 2016 and brings significant experience in this area of the market. The fund adopts a bottom‑up approach, investing in subordinated instruments issued by investment grade companies to achieve higher returns and enhanced yield. Hybrid capital is a more niche segment of capital markets, sitting between senior debt and equity. Income is a central component of the strategy, forming part of the fund’s total return, with income generation targeted at 5% per annum. The fund also maintains a moderate level of interest rate exposure, with duration in the region of four years as at the end of March 2026.
Another strong performing strategy has been the Titan Square Mile AA-rated Aegon Strategic Bond. The strategy is managed by co-portfolio managers Colin Finlayson and Alexander Pelteshki. This a highly flexible strategy that aims to deliver attractive risk‑adjusted returns by actively moving across different areas of bond markets as opportunities arise. The managers combine top‑down views on the economic backdrop with bottom‑up security selection, rotating between government bonds, investment grade, high yield and emerging market debt, while actively managing interest‑rate risk to support returns through varying market conditions. The strategy has been able to strike a good balance between their top-down decisions, and bottom-up fundamental credit analysis to drive returns.
Funds to watch: Assets under management
The largest fund in the sector by a considerable margin is PIMCO GIS Income, which now stands at around £94bn of assets under management. While the scale of the strategy may raise understandable concerns around flexibility and capacity, the fund’s performance over the most recent three‑year period remains competitive within the peer group, delivering cumulative returns just shy of 22% to the end of March 2026. The strategy benefits from PIMCO’s depth of resource, with a broad team of portfolio managers and analysts covering all areas of global fixed income, which helps support diversification and implementation at scale.
The A-rated Invesco Monthly Income Plus also run a sizeable level of assets at just shy of £2bn. The fund aims to deliver a high and sustainable level of income for investors, alongside the potential for capital growth, by investing primarily in bonds with the flexibility to allocate up to 20% to equities. The managers combine views on the economic backdrop with detailed company analysis and a strong focus on valuation and risk control, adjusting the portfolio as market conditions evolve with the objective of generating income through the market cycle rather than tracking short‑term market moves. Over the long term, the fund has built a solid record of delivering income levels above the peer‑group average.
Nomura Global Dynamic Bond manages in the region of £1.8bn. Managed by the highly experienced Richard Hodges, this is an unconstrained, go anywhere bond strategy that aims to provide a combination of income and capital growth by investing across global fixed income markets. The fund combines top‑down macro views with bottom‑up security selection and makes use of derivatives to actively adjust duration and credit exposure, with a strong emphasis on downside risk management and flexibility through the cycle.
Funds to watch: Newcomers
The Oaktree Global Credit Select fund was launched in February of 26, and as at the end of March 2026 was just shy of £100M in assets in its Sicav vehicle. Oaktree are perhaps best known for their sub-investment grade pedigree under the well renowned, Howard Marks. This fund aims to provide investors with a multi-sector allocation within public credit markets, with a focus on sub-investment grade credit, aiming at offering a higher yielding, higher returning alternative to high yield bonds with lower volatility and lower defaults.
Perhaps better known for their passive offerings, Vanguard launched their actively managed Global Strategic Bond fund in July 2025. Since launch, the fund has been managed by Alex Koutny and Sarang Kulkarni and currently remains modest in size at around £38M. The fund invests across global bond markets, focusing primarily on investment‑grade government, securitised and corporate debt, with up to 25% of the portfolio able to be allocated to non‑investment‑grade bonds. As at the end of March 2026, interest rate exposure was broadly aligned with its underlying benchmark.
The Dimensional Sterling Short Duration Real Return fund was launched in April 2024. The fund is designed to provide inflation protection, aiming to deliver returns in line with or above UK inflation over the medium term. The fund invests with a short‑duration focus and applies Dimensional’s research‑driven, systematic approach to portfolio construction, seeking to balance inflation sensitivity with careful risk control rather than relying on taking significant interest‑rate risk.
