The Bank of England is among the many central banks keeping investors on their toes regarding rates rises, but how has this uncertain backdrop affected bond managers?
Taking a closer look at the Bonds – Sterling market sector, there are currently 21 fund managers operating bond funds open to investors outside the UK.
Of these, there are nine managers who can boast a track record that stretches back over five years. The average manager in the sector has returned 39.87% over this period.
However, there are only two fund managers who have beaten the average peer in each individual 12 month period between May 2009 and May 2014.
So, who are the standouts in sterling bonds and how did they manage to keep ahead of the pack over this five year timeframe?
Andy Weir, Fidelity
Best period of outperformance vs. average manager: +9.56% in 2010/11
The first of the two managers to have outperformed in each of the past five years is Andy Weir. Weir has 17 years of investment experience at Fidelity and currently runs seven bond funds across UK bonds, emerging markets, index-linked and global bonds.
In the Fidelity Inst Sterling Core Plus Bond fund, which he has run since August 2006, Weir runs a significant underweight to the UK market, where he has allocated 17 percentage points less than the index.
Instead, Weir has taken off-benchmark bets on Asia ex Japan and Switzerland, while also holding almost double the index allocation to US and North America. His main area of investment is in the 20-25 year maturity range, while BBB-rated bonds make up over a quarter of his exposure in terms of credit quality.
The Fidelity Inst Sterling Core Plus is UK-domiciled, but registered for sale across seven European markets.
Iain Stealey, JP Morgan
Best period of outperformance vs. average manager: +6.87% in 2009/10
Vying for the outperformance crown with Weir is JP Morgan’s Iain Stealey. The Citywire + rated manager has run the £78.5 million (€98.3 million) fund since June 2006 and was named lead on the fund when his former co-manager Jon Jonsson joined Neuberger Berman in March 2013.
In a similar vein to Weir, Stealey has opted to invest in an array of markets beyond the UK, which only makes up 55% of the fund’s geographic exposure at present. This is while the US (15%) and France (9.5%) are also well represented.
The bulk of Stealey’s investments are in the corporate bond market, which makes up 71% of his sector exposure. This is ahead of mortgage-backed debt (14%) and agency-backed paper (6%). His largest single holding is in the European Investment Bank, which is a 4.3% bet.