Strategic bond funds, especially RL Sterling Extra Yield Bond

aroominyork

masonic wrote: »

Yes, that's one way of doing it. But the idea behind strategic bond funds is for them to have a fairly wide remit so that they can move between short and long dated bonds and between Government, investment grade and high yield at different points in the economic cycle. If you want fixed allocations (or care to dabble with allocations yourself) then the argument for a passive fund is strong.

In practice, how much do strategic bond funds move around across the 'fixed income universe'? Although they have the flexibility, do they do so or tend to stick within a relatively limited range of allocations?

masonic

aroominyork wrote: »

In practice, how much do strategic bond funds move around across the 'fixed income universe'? Although they have the flexibility, do they do so or tend to stick within a relatively limited range of allocations?

This information can be found in the annual reports of such funds. For example, M&G Optimal Income (I'm using this example just because I hold the fund) was fairly heavily invested in high yield corporate bonds, but reduced its exposure just over a year ago and began increasing exposure to investment grade bonds (doubling its exposure to AAA and AA rated bonds over a year and making further increases in the last few months). This included building a >20% holding of US treasuries, to which the fund held % exposure prior to mid-2017. So not just a little tinkering around the edges.

Linton

aroominyork wrote: »

Thinking more about this two points come to mind.

First, when comparing the RL fund to a UK all share index there is not a world of difference in performance over the last ten years (although RL held up well this October) and if you go back to the 2007-08 financial crisis the RL fell more sharply than the all share index. So should the RL, which is 65% UK bonds, be considered a UK equity proxy fund rather than a traditional bond fund?

Second, short butt’s post #8 looks like good advice: to split the FI allocation between gilts and bonds and choose a low cost tracker for the gilt element, ie not pay the manager a sizeable chunk of any likely gain to predict interest rates and currencies.

Royal London Sterling Extra Yield Bond, which seems to be their Strategic Bond hardly a proxy for UK Equity. Look at the graphs, its a lot less volatile in the short term dropping 0.5% in the past month compared with the FTSE AllShare which has dropped about 4%. Looking at the longer term, over 10 years the Royal London Fund has returned 188% compared with the AllShare with dividends reinvested of 149%.


I prefer the Jupiter Strategic Bond fund which seems a bit more cautious. It didnt really drop at all in the 2008 crash, has risen over the past month and has a 10 year perormance close to the FTSE AllShare. That is why it forms part of my Wealth Preservation portfolio.

aroominyork

Linton wrote: »

Royal London Sterling Extra Yield Bond, which seems to be their Strategic Bond hardly a proxy for UK Equity. Look at the graphs, its a lot less volatile in the short term dropping 0.5% in the past month compared with the FTSE AllShare which has dropped about 4%. Looking at the longer term, over 10 years the Royal London Fund has returned 188% compared with the AllShare with dividends reinvested of 149%.


I prefer the Jupiter Strategic Bond fund which seems a bit more cautious. It didnt really drop at all in the 2008 crash, has risen over the past month and has a 10 year perormance close to the FTSE AllShare. That is why it forms part of my Wealth Preservation portfolio.

I mean ‘proxy’ in the way that some defensive equities are sometimes described as bond proxies. The level of return for RL is not dissimilar to equities - though RL’s day-to-day/week-to-week volatility is much lower - and it seems to carry similar risk in an economic downturn as it is based around sub-investment grade and unrated bonds. Maybe it held up this October because the correction had less to do with economics than would be the case in a recession-based market fall.

Jupiter is a conservatively managed strategic bond fund. That is why I see RL and Jupiter as chalk and cheese, and agree the former would have no place in your Wealth Preservation portfolio unless as a proxy for equities.

firestone

Royal London did launch the RL GMAP conservative fund a couple of years back which might appeal if the High Yield does not and while not really of any use data wise has held up well over the last few months by the look of it

Prism

Thanks for the tip on Jupiter. I had been keeping an eye on Royal London Sterling Extra Yield but it does seem a bit high risk. I am not sure where Sanlam fits into all of this as the history looks a bit short

I will be getting a pretty decent lump sump (50k) in a few weeks which I need to preserve at roughly CPI (so thats 2.2% at the moment) so looking for a bond fund to go along with some standard fixed interest accounts.

aroominyork

Prism wrote: »

Thanks for the tip on Jupiter. I had been keeping an eye on Royal London Sterling Extra Yield but it does seem a bit high risk. I am not sure where Sanlam fits into all of this as the history looks a bit short.

I agree Sanlam’s history is a little short and despite holding it I struggle to understand its risk level given its strong performance based on a strategy of investing in "undervalued bond issues primarily in the investment grade/crossover area".

Jupiter's manager is often said to have a good grasp of the macro environment and the fund is often mentioned alongside M&G Optimal which held up incredibly well in the 2008 crisis.

Audaxer

Linton wrote: »

I prefer the Jupiter Strategic Bond fund which seems a bit more cautious. It didnt really drop at all in the 2008 crash, has risen over the past month and has a 10 year perormance close to the FTSE AllShare. That is why it forms part of my Wealth Preservation portfolio.

Linton, I've also got the Jupiter Strategic Bond I Inc version of the fund, which was only launched in 2011. I didn't realise the performance was up with the FTSE All Share. Which version do you have?

Linton

Audaxer wrote: »

Linton, I've also got the Jupiter Strategic Bond I Inc version of the fund, which was only launched in 2011. I didn't realise the performance was up with the FTSE All Share. Which version do you have?

I use Jupiter Strategic Bond I Acc. The 10 year performance is 143% compared with the FTSEAllshare of 149%, both after dividend/interest reinvested. Have a look at the two using Trustnet/Charting. Its interesting, showing the bond fund has the overall peformance without any of the fluctuations.



IMHO the relative performance is as much a comment on the FTSE as an investment as evidence of superb management by Jupiter.

Audaxer

Linton wrote: »

I use Jupiter Strategic Bond I Acc. The 10 year performance is 143% compared with the FTSEAllshare of 149%, both after dividend/interest reinvested. Have a look at the two using Trustnet/Charting. Its interesting, showing the bond fund has the overall peformance without any of the fluctuations.

Thanks, it is a much better performance than I had thought. I've just looked on Trustnet and see that the Acc fund was launched on 2 June 2008, and it had an initial dip of about 15% between then and June 2009, but a very good steady performance since then.

Out of interest I compared it to another wealth preservation fund RIT Capital Partners, and the Jupiter fund is much less volatile yet had a better Total Return over the last 10 years - 143% compared to RIT at 137%. Jupiter's really strong performance seems to have been between 2009 and 2013 as it only returned 17% in the last 5 years to date. Whereas RIT was the opposite with their really strong returns of 66% over the last 5 years.

I'll definitely keep the Jupiter fund in my portfolio, hoping it dampens down volatility and continues on a steady path, despite the concerns that people have about bonds.