Money Observer Fund Awards 2019: Sterling Bonds winner

And the winner of the Sterling Bond award is...

June 27, 2019

Fund Awards 2019: view full list of winners

BEST FUND

Royal London Sterling Extra Yield Bond

1-year return: 4.6%
3-year return: 30.6%

Royal London Sterling Extra Yield Bond clinches its fourth Money Observer award as Best Sterling Bond fund for 2019, having been highly commended last year. It was highly commended in the Best Larger Sterling Bond fund category in 2016, when we judged larger and smaller funds separately, and took the title in 2014.

It has by far the best absolute performance of its peer group over three years and its risk/return profile is streets ahead of competitors. It has been a Rated Fund since 2013.

Eric Holt, who has three decades of experience in bond markets, runs the fund alongside co-manager Rachid Semaoune. At nearly £2 billion, it has attracted a huge following. The managers offer a different perspective on bond market investing because they focus on more esoteric, undervalued and overlooked areas, instead of the bond credit ratings that occupy many fixed income managers.

They believe that by considering a wider investment universe than many of their peers, they can uncover more opportunities. This is therefore a value-oriented bond fund that aims to exploit credit market inefficiencies and tends to hold untypical bonds – unrated stock, smaller issue sizes, sub-investment grade bonds and non-sterling bonds – where they believe valuations are attractive.

The managers aim to provide investors with a high yield without taking the degree of risk normally associated with high yield funds. To mitigate risk, they favour bonds that are secured against specific assets, such as property or cash flows. They run a highly diversified portfolio with 230 holdings.

HIGHLY COMMENDED FUND

A new entrant to our Rated Funds and awards for 2019, Schroder Sterling Corporate Bond has returns that rank it in the first quartile of its peer group. Manager Jonathan Golan is treading carefully, so could be a good call at this late stage of the economic cycle.

Golan believes that global credit valuations and growth peaked in the first and second quarters of 2018 respectively.

He aims to balance the portfolio between attractive investment opportunities and the challenging macroeconomic backdrop. The lion’s share of assets at almost two-thirds is in middle-of-the-road BBB rated stock.

Smaller allocations are made to sovereign and AA rated corporate bonds, as well as bonds rated below investment grade and unrated securities. The fund has 145 positions and yields 3.7%.

Wide investment universe uncovers more opportunities

A graph showing the performance of Fund Award 2019 winners (Sterling bonds)

 

Fund Awards 2019: view full list of winners

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