Strategic bond funds holding equities

aroominyork

Sanlam Strategic Bond Fund holds equities. HL's fund summary shows 13.23% in equities while the last interim financial statements (accessible through HL's key features and documents > Report & Accounts) show 10.26% of its assets being equities in banks and insurers. Is it common for bond funds to hold equities and why do they do it, please?

bowlhead99

The equities in the banks and insurers will pay dividends, may offer some capital growth.

However based on the prospectus, the equities might be more likely to be 'preference shares' rather than ordinary shares - which offer relatively fixed levels of returns rather than voting rights and get paid off before the ordinary equity holders. So the returns are more 'high yield corporate bond'-like, without the same loss potential as regular ordinary shares. My Lloyds preference shares are yielding 5-6%, for example.

There are some funds in the strategic bond sector that will have a wider remit to seek income - e.g. M&G Optimal Income may hold ordinary shares as well, if the manager believes it's appropriate to do so given market conditions, and this can boost returns over what could be achieved with debt alone.

More generally, most investment funds have a stated strategy which will allow for tweaks and adjustments to that strategy, perhaps with a % cap on what can be invested in some minor or less-mainstream part of the strategy from time to time.

aroominyork

Many thanks. Checking the M&G factsheet I see it can invest up to 20% in equities. M&G is a mammoth fund around £20bn, which I assume is largely based on how well it held up in 2008. It also has a very straight-taking manager who has said in recent interviews that the bond market holds little value these days.