IA Global Bond funds managed by the likes of GAM, Schroders and T. Rowe Price have generated some of the best results for a wide range of risk and return metrics in recent years, FE Trustnet research shows.
In the final article of this series, we reviewed the IA Global Bonds sector’s members across 10 different metrics to see which have been at the top of the peer group for both returns and risk over recent years.
To do this, we have ordered the funds for average decile rankings of their five-year returns up to the end of 2017, the annual returns of 2017, 2016 and 2015, annualised volatility, alpha generation, Sharpe ratio, maximum drawdown and upside and downside capture relative to the sector average.
Performance of fund vs sector over 5yrs to the end of 2017
Source: FE Analytics
After running these numbers, the fund sitting at the top of the list was the $4.6bn GAM Star Credit Opportunities USD fund with an average decile ranking of 2.2.
Headed up by FE Alpha Manager Anthony Smouha and Gregoire Mivelaz, the fund has posted top-decile results for its 90.37 per cent five-year total return, performance in 2015 and 2016, alpha generation, Sharpe ratio and upside capture.
GAM Star Credit Opportunities USD has a specialist approach that focuses on the junior and subordinated of investment grade companies; the approach maintains there is a very low likelihood that quality financial companies will default on their debt, therefore the portfolio can pick up extra carry by holding lower tier debt issued by these businesses.
This fund seeks to generate a capital gain in US dollars; there is another version - GAM Star Credit Opportunities EUR – that aims for euro-denominated capital gains and it is ranked third in this study with a 2.7 average decile ranking. When we looked at the IA Sterling Strategic Bond sector, the sterling version of the fund – GAM Star Credit Opportunities GBP – was in first place.
Schroder ISF Global High Yield, which is run by Martha Metcalf, Konstantin Leidman and FE Alpha Manager Michael Scott comes in second place in the IA Global Bonds sector thanks to its 2.6 average decile ranking. The $2.5bn fund’s 58.17 per cent five-year total return is in the peer group’s top decile, as is its performance in 2016, alpha and Sharpe ratio.
In their most recent update, the managers explained why they are underweight US and overweight Europe: “Given the recent outperformance of the asset class, relative value, particularly in US high yield, is less attractive and with short rates rising in the US, it is becoming less onerous than usual to hold cash.
“We will continue to sell bonds which have done well and which we believe have little further price appreciation potential. We can be patient and invest in select new issues or redeploy some of the proceeds in a more aggressive fashion into emerging markets or pan-European high yield should valuations continue to diverge.”
Source: FE Analytics
T. Rowe Price also stacks up well, with two of its funds appearing in the top five.
In fourth place with an average decile ranking of 2.8 and an 81.15 per cent five-year return is T. Rowe Price Global High Yield Bond. Headed up by Mark Vaselkiv and FE Alpha Manager Michael Della Vedova, the $1.6bn fund makes use of value-driven process that combines top-down macro analysis with bottom-up credit selection.
T. Rowe Price European High Yield Bond, which also has a 2.8 average decile ranking and is run by Della Vedova, uses a similar process but focuses on European high yield bonds rather than global opportunities.
The largest fund in the IA Global Bonds sector is Templeton Global Bond, which has assets under management of £11.8bn and is run by Michael Hasenstab and Sonal Desai.
Its average decile ranking of 6.9 means it is ranked 105th out of 124 funds in the peer group. While the fund is in the top decile for downside capture, it has bottom-decile numbers when it comes to five-year returns, Sharpe ratio and upside capture.
Other larger funds have fared better in this research. Andrew Balls, Lorenzo Pagani and Sachin Gupta’s £7.8bn Pimco GIS Global Bond fund is ranked 30th thanks to an average decile ranking of 4.4 while Patrick Vogel’s £7.8bn Schroder ISF EURO Corporate Bond fund is 24th place with a score of 4.
The largest index tracker in the peer group – the £7.5bn Vanguard Global Bond Index fund – also performs well in this research after its average decile ranking of 5.1 put it in 49th place of 124 peers. The tracker appeared to do well on more defensive measures, sitting in the sector’s top decile for annualised volatility, maximum drawdown and downside capture.
Performance of fund vs sector over 5yrs to the end of 2017
Source: FE Analytics
The fund coming in last place, however, is Pimco GIS Global Advantage Real Return. This $122.3m fund has an 8.3 average decile ranking and is in the bottom decile of the peer group for its 2015 performance, alpha, volatility, maximum drawdown, Sharpe ratio and downside capture; it is in the ninth decile for its 7.34 per cent five-year total return.
Other funds towards the bottom of the table are Janus Henderson Inst Overseas Bond (with a score of 8.1), Scottish Widows International Bond (8), GAM Multibond Total Return Bond (7.8), Barclays Global Access Global Government Bond (7.8) and Pictet Latin American Local Currency Debt (7.8).