Bond tips: time for defensive stance as bull market struggles

We round up the bond and multi-asset choices made by our panels of fund and investment trust experts.

Fixed income

Liontrust Strategic Bond (growth)
TR 1 year n/a, 3 years n/a, yield 2.2%

Strategic bond funds, which have the flexibility to invest in any type of fixed income holding, are viewed as the best port of call to protect investors’ capital. This fund is headed up by the highly respected team of David Roberts and Phil Milburn, formerly of Kames Capital before moving to Liontrust and launching this new fund in March 2018. Kelly Prior of BMO names the fund as her number one bond choice. She adds: “This is a truly ‘go anywhere’ strategic bond fund run by old hands in a new company, with a mandate designed by them in an increasingly interesting market.”

Invesco Perpetual Enhanced Income IT (income)
SPTR 1 year -3.8%, 3 years 24.5%, premium 6.3%, yield 6.8%

This trust invests in UK and overseas corporate and government bonds. Peter Hewitt fears all bonds funds will have a hard time as interest rates firm, but for those wanting exposure he suggests this trust, which has been managed since 2001 by Paul Read and Paul Causer. Hewitt says the managers are exceptionally experienced and have sizeable personal stakes in the trust. It offers an attractive yield, paid quarterly.
Fund factsheet: Invesco Perpetual Enhanced Income IT

Ashmore Emerging Markets Short Duration (wildcard)
TR 1 year 5.9%, 3 years 49.6%, yield 0%

The fixed income wildcard pick for 2019 buys short-dated emerging market bonds and holds them to maturity. The bonds are issued in hard currencies and pay attractive coupons. The level of income the fund is generating is high – the distribution yield is currently 6% – but as Jason Broomer points out, this attraction must be tempered with the understanding that this is a risky asset class. He adds: “Emerging market bonds tend to trade at a significant yield premium to developed market bonds for good reason. This said, we believe that this fund could be a very attractive prospect for investors seeking income who are willing to tolerate some volatility and invest for the long term.”

Multi-asset

Personal Assets IT (growth)
SPTR 1 year -0.3%, 3 years 20%, premium 0.9%, yield 1.4%

Our two growth multi-asset selections have strong defensive mindsets, investing with the principle that they would sooner keep £1 than risk losing it to try and win £2. But in rising markets these funds will lag both the stock market and many sector rivals. Personal Assets aims to protect and increase (in that order) shareholders’ value over the long term. Investment adviser Sebastian Lyon has been wary of equities for years, keeping exposure low, with the balance mainly in sovereign bonds. Sandy Cross likes the emphasis on “straightforward, liquid assets”.
Fund factsheet: Personal Assets IT

RIT Capital Partners IT (growth)
SPTR 1 year 4.2%, 3 years 32.2%, premium 8.1%, yield 1.6%

Invests globally in equities, private equity, hedge funds, credit and currencies, with a strong emphasis on capital preservation. John Newlands says: “Despite its premium rating, I can’t look past RIT Capital because of the sheer breadth of its managerial talent, its meticulously constructed strategic overlay, and its unrivalled network of global connections.” Tim Cockerill is also a fan. “While not immune to negative market movements, it has a good record of downside protection,” he adds.
Fund factsheet: RIT Capital Partners IT

BMO MM Navigator Distribution (income)
TR 1 year -0.4%, 3 years 16%, yield 4.9%

The BMO MM Navigator Distribution fund has produced more income than any other open-ended fund in its sector (IA mixed investment 20-60% shares) since its launch over 10 years ago, points out Kelly Prior. She herself is a member of the team headed up by Rob Burdett and Gary Potter, two of the most experienced fund buyers around. The fund has a tasty yield, and has produced top-quartile performance over the past year against a difficult backdrop.
Fund factsheet: BMO MM Navigator Distribution

JPMorgan Multi-Asset Income IT (income)
SPTR 1 year n/a, 3 years n/a, discount -7.1%, yield 2.1%

JPMorgan’s multi-asset trust seeks to deliver a reasonable and growing income, but with less volatility than equities. This is achieved through investing in a diverse range of assets including debt and infrastructure. Charles Murphy says: “While higher yields are available in the multi-asset space, we believe that the yield targeted by management is reasonable, sustainable and provides them with sufficient flexibility to maintain the real value of the fund’s portfolio over time.”
Fund factsheet: JPMorgan Multi-Asset Income IT

Investec Cautious Managed (wildcard)
TR 1 year -4.2%, 3 years 16.2%, yield 0.8%

This is the wildcard choice due to the manager’s contrarian investment style. Headed up by Alastair Mundy, the fund has produced annualised returns of 7.5% since launch in 1993. A quarter of the fund is in UK equities, with banks a favoured sector. Broomer adds: “Mundy and his team have adhered to an investment approach that has been successful over a number of market cycles. His valuation-driven approach has been out of favour with investors for several years. Should we see a reversal in this trend, the fund is likely to benefit from the style tailwind.”
Fund factsheet: Investec Cautious Managed

Note: fund tips are shown in green and investment trust tips in blue. (SP)TR = (share price) total return. All performance data Morningstar, as at 1 December 2018. Read about Money Observer Rated Funds here.

More expert tips:

Our fund and trust tips panels

Our fund experts:

Kelly Prior is an investment manager in BMO Global Asset Management’s multimanager team. She joined the group from Thames River Capital in 2007.
Brian Dennehy is managing director at advisory firm Dennehy Weller. He also runs FundExpert, which provides research and insights for self-directed investors.
Mick Gilligan joined Killik & Co in 2001 and became a partner in 2004. He was previously an investment specialist at a private client advisory business.
Jason Broomer has more than two decades’ experience in fund research. He runs Square Mile’s portfolio service.
John Husselbee is head of the Liontrust multi-asset team. He has more than 25 years’ experience in managing multi-asset portfolios.
Ben Yearsley is a director at Shore Financial Planning. He was formerly head of investment research at Charles Stanley Direct.

Our trust experts:

Tim Cockerill is investment director at wealth manager Rowan Dartington, which is part of St James’s Place. It is responsible for client assets in excess of £1.5 billion.
Sandy Cross is a partner at Rossie House Investment Management, which has long favoured investment trusts for private client portfolios. He joined RHIM in 2012.
John Newlands worked for nearly a decade as head of investment companies research at Brewin Dolphin. He is founder of Newlands Fund Research.
Peter Hewitt has managed the BMO (formerly F&C) Managed Portfolio trusts since 2008. He joined F&C in 1999.
Charles Murphy is head of listed investment companies analysis at Panmure Gordon, which he joined in November 2012.

 

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