First up is Blackrock Fixed Income Global Opportunities Fund that has been managed by a four-person management team led by Rick Rieder. The team has used the fund’s flexibility to its advantage across a variety of market environments, including both weak and strong credit markets as well as periods of rising and falling interest rates.
The fund spreads risk across sectors, regions, and issuers and emphasises taking many small bets rather than a few large ones. It has no benchmark, and its investable universe is wide, though the managers play it safe, especially when it comes to duration. The fund’s duration can officially range between minus two and plus seven years, but they’ve generally kept it within a tighter range of zero to three years. The managers implement macro themes and determine broad asset allocations while relying mostly on the firm’s sector teams for individual security selection.
In a category of risk-takers, this fund’s disciplined and risk-focused process stands out. Combined with an experienced and deep team, the fund retains its Morningstar Analyst Rating of Silver.
Next up is AXA Global High Yield Bonds that has been managed by co-managers Carl “Pepper” Whitbeck and James Gledhill since July 2012. Both managers boast over a decade’s experience in high-yield investing and have credit research backgrounds, which we deem valuable. Gledhill manages the fund’s European high-yield exposure while Whitbeck leads on the US high-yield portion.
They employ a differentiated approach compared to peers. The fund uses largely a buy-and-hold approach that aims to add value by cashing in coupons rather than betting on a potential rise in bond prices. Thus, the managers are willing to invest a significant portion of the portfolio in lower-rated securities such as CCC bonds, holding them until maturity. That said, over half of the portfolio’s CCC stake is typically invested in maturities below three years, which helps alleviate risk.
Overall, we are confident in the team’s ability to effectively execute the process and add value over a full market cycle. We maintain the fund’s Bronze rating.
Lastly, we have Royal London UK Government Bond Fund. The fund is managed by gilt market veterans Paul Rayner and Craig Inches who have worked together at Royal London for nearly a decade. Inches has been the lead manager here since he joined the team in 2009 from Scottish Widows Investment Partnership.
The investment process here combines macroeconomic research with detailed analysis of the main drivers of developed government bond markets, including the shape of the yield curve, market sentiment, and technical analysis. Both bond selection and allocation decisions across UK and major developed markets’ government and inflation-linked bonds are important parts of alpha generation here. We believe the managers have the ability and relevant experience to combine macroeconomic analysis with an understanding of the dynamics of the gilt market and are able to effectively apply this through a risk-aware portfolio-construction process. We therefore retain the fund’s Bronze rating despite its disappointing above-median fees.
