und such is disingenuous in my view. No one can claim to deliver positive returns in all environments).
The disparity in returns reflects clearly the key performance drivers during the period. More specifically, being long duration helped, as interest rates fell (duration is a measure of the sensitivity of a bond's price to fluctuations in interest rates) while favouring higher quality credits over lower-quality fare also proved a smart bet. The most important factor, however, was currency: The US dollar appreciated 39% versus the Pound, the Euro appreciated 21% versus the Pound, and the Yen rocketed 66% versus the Pound. In other words, a fund manager could have invested in a cash account in Yen, and gained 66% in the period. Security selection, then, was not a major issue and top-down calls ruled the day.
The SWIP Global Bond Plus offering is a key case in point. Manager Guy Skinner, who took the helm in early 2008, had substantial exposure to dollar, yen, and euro assets (81% of the fund's assets were in those three currencies at last count). He also kept the fund in government bonds, as has historically been the case at the offering. In short, for sterling investors, the fund was in the market's sweet spot. While impressive, we'd caution against attaching too much significance to that performance. The fund has been through a few managers in recent years, and needs to show more consistency through time to deserve serious consideration in our view.
An offering with somewhat more to recommend it in our view is Jim Leaviss's M&G International Sovereign Bond. Though he hasn't been at the helm here long--he took over following the December departure of David Knee--Leaviss is a veteran manager and M&G is a group which has offered more continuity than SWIP in the recent past. We also like this fund's mandate, which keeps it out of gilts. M&G tried to change it about a year ago when Sterling was riding high, but we're glad the move failed. It makes the fund a strong diversifying "bolt-on" for portfolios that already have gilt exposure.
We'd also note that there are a large number of funds in this category charging more than 1.50% in annual TER. Paying that much for a bond fund is just foolish in our view--we'd stick to funds with TERs of 1.25% or below for vanilla global exposure.
A version of this article previously appeared in Investment Adviser, Financial Times Ltd.
