Markets went on a roller-coaster ride last year when former Fed chair Ben Bernanke first hinted at the prospect of tapering.
Speaking in May, Bernanke said the Fed could 'take a step down in the next two meetings’, within seconds, bonds and equities markets took a sharp turn to the downside.
Citywire Global has taken a closer look at the top US bond funds performers in the last year since the markets tumbled to see who has come out with their head held high.
Taking into account the 12-month period from just prior to Bernanke's comments to now, the average manager in the US bond sector lost 0.13%. Among 112 managers, 52 have outperformed the average return, while 60 have underperformed it.
Over the same timeframe, the most commonly held benchmark, the Citi United States WGBI TR, fell 1.21%. So who stood out? Let’s take a closer look at the three best performers.
3. Dan Fuss, Elaine M. Stokes, Matthew Eagan, Loomis Sayles
Total return (April 2013- March 2014): 6.84%
Posting the third strongest performance over this period is the Loomis Sayles trio of Dan Fuss, Matthew Eagan and Elaine M. Stokes. Veteran Fuss started managing the fund since inception and he delivered a total return of 6.84% over the analysis period.
The fund invests primarily in investment-grade and high yield fixed income securities issued by US companies and government. It is focused on total return with a bottom-up bond selection approach.
In fixed income, Fuss has a preference for corporate bonds (78.3%, in contrast with a 32.8% in the benchmark), followed by treasuries (15.5% vs. 52.5% in the benchmark). Among its top holdings are Canadian and Norwegian government notes and Best Buy corporate bonds. Although its main exposure is in bonds (83.2%), the fund has some holdings in equities (7.8%) and cash (9%).
2. Jon Mawby, Man Group
Total return (April 2013- March 2014): 8.37%
Sitting in second place is Jon Mawby of Man Group, who has co-run the GLG Flexible Bond fund since January 2013. The fund invests in debt securities, global currencies, money market instruments, time deposits and any associated derivatives.
Speaking to Citywire Global last month, Mawby voiced concern over the recent rise in popularity of banks loans, which he regards as too illiquid for many of the large bond funds offering daily dealing. He described liquidity worries as the 'elephant in the room'.
He also regards unrated bonds and bank loans as illiquid investments and they are strictly limited within the fund. Finally, he expects the eurozone sovereign debt crisis to flare up again within the next 12-24 months.
1. Anthony Smouha, Atlanticomnium
Total return (April 2013- March 2014): 14.48%
Posting the strongest performance over this analysis period is Citywire A-rated manager Anthony Smouha, CEO of Atlanticomnium and adviser to multiple GAM bond funds.
On the GAM Star Credit Opportunities fund, his main bets have been on perpetual notes, like HBOS Capital Funding LP 6.85% Perpetual, Aberdeen Asset Management 7% Perpetual and BNP Paribas FRN Perpetual. The fund is 99.15% exposed to US Dollar bonds, while the top 10 holdings represent the 26.8%.
‘The fund had a good first quarter,’ Smouha wrote in his latest commentary. ‘Risk appetite returned and most of our holdings increased in price. In addition, any headwind of higher long-term rates did not materialise.’
‘Most of our activity has been in the secondary market, where we still find good opportunities among the many outstanding issues. For example, we added to some old non-callable Lloyds Bank bonds at a yield over 7%, and we located some interesting Goldman Sachs senior fixed and floating rate securities.’