Patient investors could have doubled their money over the past five years by investing in a select few cream-of-the-crop funds. Keen observers will notice that corporate and emerging market bond funds were the place to be.
Here is a list--with some analysis--of the best performing open-end funds over the last five years:
Top-Performing Funds
1. GLG Global Corporate Bond Fund
107% cumulative return over the last five years
2. Investec Emerging Markets Local Currency Debt Fund
106% cumulative return over the last five years
Morningstar Rating: Bronze
Click here to read Morningstar’s Analyst Research
3. M&G International Sovereign Bond Fund
102% cumulative return over the last five years
4. Threadneedle Emerging Market Bond Fund
97% cumulative return over the last five years
5. Aberdeen Emerging Markets Fund
88% cumulative return over the last five years
Morningstar Rating: Gold
Click here to read Morningstar’s Analyst Research
6. First State Global Emerging Markets Leaders Fund
87% cumulative return over the last five years
Morningstar Rating: Gold
Click here to read Morningstar’s Analyst Research
7. M&G Emerging Markets Bond X Fund
87% cumulative return over the last five years
8. AXA Framlington Biotech Fund
87% cumulative return over the last five years
9. Investec Global Bond Fund
87% cumulative return over the last five years
10. Newton Asian Income Fund
86% cumulative return over the last five years
Morningstar Rating: Silver
Click here to read Morningstar’s Analyst Research
The majority of the funds listed above made extraordinary returns by investing in various types of higher-yielding bonds. In particular, the top performing GLG fund--which more than doubled investors’ money in five years--invested predominantly in BBB-rated corporate bonds. The rest of the fund’s money was mainly invested in A-rated bonds.
At the recent 2012 Morningstar Investment Conference, John Pattullo, head of retail fixed income at Henderson Global Investors, says he specifically likes investing in bonds issued by companies in the middle of the credit rating curve, which have BBB, BB and B ratings. These companies offer attractive bond yields and relative safety, compared to some riskier investments, he says.
To learn more about how to make high-yield corporate bonds work for you, click here.
The second-best performer on the list--a fund from Investec--also focuses on investing in bonds in the middle of the credit rating curve, with nearly 50% of the fund’s holdings invested in BBB-rated bonds.
But even though this Investec fund has performed remarkably well over the last five years, Morningstar OBSR analyst Emma O’Neill warns in her latest research note that “this fund is high-risk in nature and would typically be a peripheral portfolio allocation for investors with a full understanding of the risks entailed in investments in local currency debt.” Investors should also be aware that the “fund’s total expense ratio (TER) is above the sector median and consequently provides a headwind to performance,” writes O’Neill.
To learn more about the case for emerging market debt, click here.
The 10 funds listed above were the best performers out of 1,300+ funds. Funds were considered only if they were available for sale in the UK, had share classes in pound sterling, provided regular performance data and had at least a five-year history. Furthermore, funds were only considered if they had a minimum investment limit that was below £10,000, ensuring these funds were more accessible to individual investors.
To learn about the 10 worst-performing funds in the UK over the last five years, click here.
Investors should note that past performance is no guarantee of future performance within a fund or any other financial investment. Investors should conduct their own due diligence and research before making an investment decision.
