However, there are question marks surrounding the true flexibility of funds of this kind. Many have a significant bias towards a certain type of bond or a certain level of yield, which some experts believe goes against the whole reason for owning a Strategic Bond fund.
FE Alpha Manager Richard Hodges (pictured) says there are only eight funds that are flexible and dynamic enough to warrant membership of the IMA Sterling Strategic Bond sector, including his own.
With this in mind, FE Trustnet asks Richard Troue and Ben Willis to identify the portfolios that they believe give bond investors genuine flexibility.
Jupiter Strategic Bond
Troue, investment analyst at Hargreaves Lansdown, is among the experts that are concerned by the lack of flexibility in the sector; however, he identifies Jupiter Strategic Bond as one that investors can retain confidence in.
"One of our favourites is Jupiter Strategic Bond, which is run by Ariel Bezalel," he said.
"The fund doesn’t have the longest of track records, but Bezalel has plenty of experience running portfolios at Jupiter."
"The fund has produced decent numbers and Bezalel is a bit more likely to go 'off-piste' than some of his peers."
"He looks a lot more overseas than most and looks at esoteric areas of the bond market such as Australian government bonds and oil rig corporates from Norway."
"He has used his flexibility more than most," he added.
FE Alpha Manager Bezalel has managed the five crown-rated Jupiter Strategic Bond fund since its launch in June 2008.
According to FE Analytics, the fund is the second-best performing fund in the IMA Sterling Strategic Bond sector over this period, with returns of 70.69 per cent. Its benchmark – the Iboxx Non-Gilt All Maturities index – has returned 47.39 per cent over this time.
Performance of fund vs sector and index since June 2008
Source: FE Analytics
The only fund to have beaten it over the period is Hodges’ L&G Dynamic Bond fund, which is up 72.81 per cent.
The £1.4bn Jupiter Strategic Bond fund is top quartile over three years, but has underperformed against the sector in the shorter term.
Bezalel’s fund is yielding 5.6 per cent, compared with 4.3 per cent from the sector average.
It is invested primarily in B, BB and BBB rated credit, and has some exposure to sub investment grade bonds as well.
Bezalel holds 36.06 per cent in the UK and 29.37 per cent in Europe. However, the fund’s three largest individual holdings are in Australian Government Bonds.
Jupiter Strategic Bond has an ongoing charges fee (OCF) of 1.5 per cent and requires a minimum investment of £500.
Invesco Perpetual Tactical Bond
Troue also likes Invesco Perpetual Tactical Bond due to its high level of flexibility and its management’s high-conviction approach.
"We like Paul Causer and Paul Read’s Invesco Perpetual Tactical Bond fund," he said. "They made a big call to invest in banks a few years ago, which at the time was quite punchy."
"They felt that negative feeling towards banks had gone too far and decided to get into the sector, which of course ultimately paid off."
"Causer and Read are willing to use their full flexibility and are prepared to make those big, high-conviction calls," he added.
Industry stalwarts Causer and Reed have run the £282m Invesco Perpetual Tactical Bond fund since its launch in February 2010.
Since then, it has returned 27.33 per cent while the IMA Sterling Strategic Bond sector has returned 26.15 per cent.
Performance of fund vs sector since Feb 2010
Source: FE Analytics
The fund’s high exposure to banks led to severe losses during the summer crash of 2011, but the manager’s high-conviction call has paid off handsomely since then.
Invesco Perpetual Tactical Bond holds 13.95 per cent in US Treasuries, 10.02 per cent in Spanish government bonds and 8.77 per cent in Portuguese government bonds.
Banks dominate the fund’s corporate bond exposure though: its three largest issuers are UBS, Lloyds and RBS.
The fund currently has very small exposure to futures, options and other alternative investment strategies.
It has a below-average yield of 3.32 per cent. Its OCF is 1.43 per cent and it requires a minimum lump sum investment of £500.
Artemis Strategic Bond
Whitechurch’s Ben Willis says that strategic bond funds do not necessarily have to be overly diverse, but likes Artemis Strategic Bond because of its dynamic approach.
"With a strategic bond fund you are looking to put your money with the expertise of a manager."
"They might not have a dynamic portfolio, but that could be because they are taking a couple of high conviction calls," he said.
"Despite that, one of our core holdings is Artemis Strategic Bond. It is a very flexible fund and the managers will go where they see value and opportunities."
"They have had a pragmatic approach recently as they haven’t really been sure where the bond market is going to go, so they have held a broad array of assets from corporate bonds to distressed debt coming out from Greece."
"They have felt that with the risk-on/risk-off environment they should cover all the bases. However, they had been 50 per cent in financials and wanted to go even higher but for risk reasons they felt it wouldn’t get past compliance."
Artemis Strategic Bond was launched in June 2005 and is co-managed by James Foster and Alex Ralph.
The £560m fund has returned 57.11 per cent over this time while its benchmark – the Iboxx Non-Gilt All Maturities index – and the IMA Sterling Strategic Bond sector have returned 51.73 per cent 40.7 per cent, respectively.
Performance of fund vs sector and index since June 2005
Source: FE Analytics
The fund is also a top-quartile performer over five years, with returns of 46.57 per cent, but has underperformed against its peers over one and three years.
Artemis Strategic Bond has a yield of 4.6 per cent.
It holds 33.1 per cent in BBB credit rating and its three largest sector weightings are to financial services, utilities and banks.
Foster and Ralph believe that because inflation looks to be increasing, western government bonds can only deliver negative real returns, so they are short on sovereign debt.
Artemis Strategic Bond requires a minimum investment of £1,000 and has an OCF of 1.1 per cent.