Sandra Holdsworth, the head of government bonds at Threadneedle, is the lead manager of the fund but colleagues manage the emerging markets and high yield portions of the portfolio.
The team has a flexible approach to decide which investments offer the best opportunities, looking at term structure [the direction of the government bond interest rates], asset class and sector allocation, and the creditworthiness of individual bond issues. She said: “The asset allocation decision is crucially important.
“The source of opportunity in bond markets is variable between [those three areas] so we also have to be pretty flexible about what kind of analysis we are using [whether top-down or bottom-up].”
The fund, which consists mainly of government and investment grade corporate bonds, can hold up to 30% of assets in emerging markets and sub-investment grade debt. In the fourth quarter of 2002 the positions in these two areas were increased from underweight to neutral so they each make up about 7.5% of the fund.
Paul Murray John, the head of emerging market debt, runs the emerging markets portion which consists purely of government debt. He recently moved into some “punchier” countries such as Brazil, Columbia and Venezuela.
Barrie Whitman, the head of European high yield, runs the sub-investment grade allocation, treating it as a fully diversified mini portfolio. It is only invested in holdings that he owns in other funds.
Ms Holdsworth uses the JP Morgan Global Government Index ex-Japan as an underlying reference index but only as a guide for tracking the currency mix of the fund, not the credit allocation.
The fund, which has 127 holdings, has recently increased its exposure to investment grade corporates, predominantly in the telecommunications area.
The house view at Threadneedle is that there is no bubble in American and euro-zone government bonds at the moment. Ms Holdsworth said: “We just feel yields are quite low compared with our current history.”
The fund has the facility to hedge back into sterling to reduce any currency risk but it is not hedged at the moment. This reflects its overweight position in the euro and the European bond market which they expect to outperform the dollar and sterling.
