Asset Allocator has done quite a bit of rooting around in the strategic bond fund space in recent times, noting a mini exodus of allocators from the space at the end of 2022 to a mini-resurgance in 2023 as managers proved themselves to be on the right side of the duration calls that were the major determinants of fixed income returns in 2023.
But a glance at the most owned strategic bond funds among the allocators reveals what can politely be called performance issues, with Nomura Global Dynamic Bond fund run by Dickie Hodges being one of the most popular, appearing in five of the portfolios we cover, but having performed much worse than both the peer group average and than the two next most popular funds, as the chart below shows.
Hodges is a bond manager who likes to swim to the most technical depths of the fixed income pond, focused on credit rather than duration or macro factors, and what may have hurt him in recent years is the single largest exposure being to financials in the wake of bust banks in both Europe and the US.
The most popular strat bond fund in our database - Jupiter Strategic Bond which is held by six allocators - has also struggled for performance.
Mike Riddell’s Allianz Strategic Bond fund is a different kettle of kippers, with the manager an interpreter of the macro environment. His fund was once the joint most owned in the sector but one allocator headed for the exit in the final quarter of 2023, reducing the number of portfolios in which the fund appears to four.
Riddell’s problem appears to have been that he had quite a pessimistic view of the outlook for the global economy, and so was longer duration in terms of his portfolio, and underweight high yield bonds, positions which have not yet worked.
Kelly Prior looks after the fixed income exposure on the multi-manager desk at Columbia Threadneedle, and remains invested in Riddell’s fund.
She said: “Although Mike’s approach has not really worked of late, the point is if market conditions change, if the economy deteriorates, then equities would likely perform less well and this fund’s exposure would do well. And that is what we want from a fund of this kind.”
Another fund owned by four of the allocators we cover is Muzinich Global Tactical Credit fund, which has delivered a small positive return over the three years to February 7, but still underperformed the peer group.
The relatively strong performance here is probably accounted for by it being a credit fund, and credit performing relatively well in recent times as the much forecast economic decline failed to materialise, while credit funds tend to be shorter duration in nature, which left many of those on the right side of the big macro conundrum of recent years.
