Quarterly review of bond funds – central bank support policy continues for the moment

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Global economic growth is expected to reach 5.8% this year and 4.4% next year. The outlook has clearly improved.

But not for everyone.

Low-income economies, where immunization advances have not been as strong as more developed economies, are expected to grow 2.9%. This is half the global growth rate.

Asia and Emerging Markets Sector Review

Some countries recover faster than others and the divergence is expected to persist, depending heavily on immunization programs. There are of course other factors, such as public health infrastructure and financial resources, but vaccine advances should remain at the forefront.

In this quarterly bond industry review, we take a look at the performance of different sectors of the bond market and share our outlook for the bond market. We also review the performance of some of our Wealth Shortlist funds.

This article is not personal advice. If you are not sure which investment is right for you, please ask us for advice.

The reopening effect

The return of freedoms has been hailed by many. It allows businesses, some of which have not been able to open since the start of the pandemic, to start trading again. The relaxation of social distancing and self-isolation rules means that it is also more economically viable for some companies.

The reopening effect paints a positive picture for growth, especially with the release of pent-up demand.

There are still some concerns. Some believe that we are currently experiencing a peak of growth in a condensed new business cycle. When concerns build up, government bond prices tend to rise and yields tend to fall, as there is more demand to hold this ‘safe’ investment.

One of the stories for the quarter was the fall in government bond yields, which was a complete reversal of the trend seen in the first quarter. UK 10-year government bond yields bottomed out at 0.51% in early August, before rising slightly to 0.57% at the end of the month.

A slightly more hawkish Fed

The US Federal Reserve (Fed) has so far maintained its support for the markets. It balances the desire for a healthy labor market with its average inflation target of 2%. But we’ve seen a slight change more recently.

Against the backdrop of high inflation coming from Fed Chairman Jerome Powell reaffirmed the Fed’s belief that the increase in inflation we see will be short-lived. He thinks there is still some way to go before we have to tighten policies.

However, the Fed has released economic projections, forecasting an acceleration in economic growth this year. He also pointed to the potential for two rate hikes in 2023, a year ahead of schedule. It might seem like a long way off, but when there is any hint that policymakers are pushing forward the timetable to raise rates, investors are taking notice.

The key for the Fed will be to find the right timing and avoid jeopardizing the recovery that has been achieved so far.

What the research team did

We recently had a virtual meeting with the managers of the Invesco Tactical Bond fund. The managers combine their analysis of the economy and individual bonds to shape the portfolio. They can invest in all types of bonds, with very few constraints – the fund is invested in the market segments that the managers believe offer the best value. The fund performed well last year, leaving it 0.8% * ahead of the benchmark group average Sterling Strategic Bond. The fund is listed on the Wealth Shortlist.

Remember that past performance is not a guide for the future. Investments and the income they generate may go up or down, so you might get back less than what you invested.


LEARN MORE ABOUT INVESCO TACTICAL BOND, FEES INCLUDED

INVESCO TACTICAL BOND KEY INVESTOR INFORMATION


We also spoke with Richard Woolnough, manager of the M&G Strategic Corporate Bond fund this quarter. Woolnough is a seasoned bond investor with decades of experience. He continues to believe that government bonds are an unattractive investment in the current environment of renewed economic growth and rising inflation. He doesn’t think there is much value to offer among corporate bonds, but believes that a strong economic recovery along with continued central bank support should keep default rates on corporate bonds going. at a low level.


Learn more about M&G Strategic Corporate Bond, including fees

M&G Strategic Corporate Bond Key investor information


How have our Wealth Shortlist bond funds performed?

Our selections of Wealth Shortlist bonds have experienced mixed performances over the past year. Some have outperformed their peer group, and others have underperformed. However, we wouldn’t expect them to all behave the same. If all of your funds in one industry are performing well at the same time, they are likely investing in similar areas.

We believe it is important for investors to build a portfolio made up of managers with different investment styles and approaches. This should improve the chances for investors to perform well in the long run.

For more details on each fund and its risks, please see the links to their fact sheets and key investor information below.

Investing in funds is not for everyone. Investors should only invest if the fund’s objectives are aligned with theirs and there is a specific need for the type of investment being made. Investors should understand the specific risks of a fund before investing and ensure that any new investment is part of a diversified portfolio. Remember that past performance is not a guide for the future. Investments and the income they generate may go up or down, so you might get back less than what you invested.

The best performing Wealth Shortlist bond fund over the past year was Artemis High Income with a yield of 19.9% ​​*. The fund is part of the IA Sterling Strategic Bond sector and is primarily managed by Alex Ralph, with Ed Legget managing the portion of the fund (up to 20%) invested in equities of UK and European companies.

As 2020 progressed, the fund’s investments in stocks of cyclical companies that depend on a strong economy to do well increased. These investments have performed well and have recently been boosted by strong trading from Entain and Deutsche Telecom. In recent months, the fund has continued to benefit from its bonds in corporate sectors that fluctuate with the wider economy – oil in particular has rebounded strongly. Ralph continued to take positions in companies that stand to benefit from the reopening of economies. She added new shows from Center Parcs, David Lloyd and Punch Taverns to the fund.


Learn more about Artemis High Income, including fees

Artemis High Income Key Investor Information


The worst performing Wealth Shortlist fund in these sectors over the past 12 months has been the M&G Global Macro Bond fund with a return of -0.6% *. The fund has had less credit risk than some other funds and remains cautiously positioned, mainly for valuation reasons. At current levels, Leaviss does not believe investors are being rewarded attractively for taking credit risk. It remains positive on the US dollar, however, and believes it should benefit from the improved economic outlook and good progress in vaccine deployment in the US relative to other markets. Leaviss is a very experienced bond investor with a solid track record. We believe his fund has the potential to perform well over the long term.


Find out more about M&G Global Macro Bond, including fees

Key investor information M&G Global Macro Bond


Strategic obligation – Annual percentage growth

July 16 –

July 17
July 17 –

July 18
July 18 –

July 19
July 19 –

Jul 20
July 20 –

July 21
High income artemis 9.6% 1.7% -4.7% 5.2% 19.9%
Tactical obligation Invesco 2.9% -1.0% -5.4% 17.7% 12.9%
IA £ Strategic Obligation 4.5% -0.4% -1.4% 11.5% 11.7%

Past performance is no guarantee for the future. Source: * Lipper IM as of 07/31/2021.


Global Bonds – Annual Percentage Growth

July 16 –

July 17
July 17 –

July 18
July 18 –

July 19
July 19 –

Jul 20
July 20 –

July 21
M&G Global Macro Bonds 2.9% -1.7% 4.7% 13.6% -0.6%
IA Global Blended Bond 2.2% -1.0% 0.2% 9.8% 6.3%

Past performance is no guarantee for the future. Source: * Lipper IM as of 07/31/2021.


Corporate Bond – Annual Percentage Growth

July 16 –

July 17
July 17 –

July 18
July 18 –

July 19
July 19 –

Jul 20
July 20 –

July 21
M&G Strategic Corporate Bonds 3.3% -0.9% -1.0% 11.2% 11.1%
IA £ Corporate Bond 2.9% -0.5% -0.1% 13.5% 9.0%

Past performance is no guarantee for the future. Source: * Lipper IM as of 07/31/2021.

Learn more about bond industry performance, fund reviews and research


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