Are hedged global bond funds the same as strategic bond funds?

aroominyork

Deleted_User said:

I have the Allianz Strategic Bond and it has behaved in the total opposite way of that chart (during the crisis). Be interesting to hear thoughts on it compared to others on the chart.

Thoughts are that you struck lucky. Allianz happened to be invested the right way when Covid came about and outperformed the sector by miles. 

MichelleN

aroominyork said:

Deleted_User said:

I have the Allianz Strategic Bond and it has behaved in the total opposite way of that chart (during the crisis). Be interesting to hear thoughts on it compared to others on the chart.

Thoughts are that you struck lucky. Allianz happened to be invested the right way when Covid came about and outperformed the sector by miles. 

Allianz have been invested the right way well before COVID when you look at the past 10 year performance on Trustnet. Although, as always, who knows if it’s the right investment strategy for the future. 

Linton

From the graphs Allianz's  high 10-year performance is entirely due to what has happened over Covid.  Prior to then Jupiter Strategic Bond was slightly ahead in total return.

I do not know how Allianz did it, but I dont think I would want my bond funds managed like that. Next time it could just as easily go wrong.   In the 2008 crash Allianz performed less well and doesnt seem to have played any clever games before.

aroominyork

So, Linton, what if anything does this tell us in the context of 'reverting to zero'?

Linton

I dont understand the question.  Those funds are not the ones that would normally be core holdings in the bond section of a balanced growth portfolio, they are more like niche funds to achieve other objectives. Try Vanguard UK Government Bond Indexed Inc to see the difference.

aroominyork

OK, so the top chart is with income reinvested, the bottom one without income reinvested. Vanguard UK Govt Bond Index Inc is A in blue. What does this tell me except that these gilts do not distribute much income? (Sorry if I am being dense.)

coyrls

It tells you that gilts are less correlated with equities than funds with lower credit rated bonds.

Linton

The key point is that an INC fund must by the rules of the game distribute all the income it receives.  So it's not as if the INC gilt fund was reinvesting part of its income.  The increase in value of the gilt fund ignoring interest distributed is solely due to the increase in the market price of the underlying gilts.  The other funds were relatively stable gaining in value from re-investment of interest.  Since the total return from a bond is fixed the moment it is issued and at maturity the price is fixed at £100 the gilt fund cannot continue increasing forever purely from  the price of the capital so it must plateau at some point and if interest rates rise the capital value will fall. Long term falling valuations is not what one wants from a bond fund held as part of a portfolio - you would be better off just holding cash.

Growth from income from steady capital, by contrast, is sustainable, though of course the amount of interest may vary.

aroominyork

Linton said:

Those funds are not the ones that would normally be core holdings in the bond section of a balanced growth portfolio, they are more like niche funds to achieve other objectives. Try Vanguard UK Government Bond Indexed Inc to see the difference.

So you said those funds - Jupiter Strategic Bond, Royal London Short Duration Credit, Man GLG Strategic Bond, Schroder High Yield Opps - would not form part of a core bond holding. I agree GLG and Schroder are racy, and Royal London is niche (I use it as a cash proxy for funds I am unlikely to need but where I want to manage the downside). But Jupiter is the one that interests me in the context of core/niche. 2unlimited91 made good points about holding gilt and corporate bond trackers, but for the moment I am closer to Bowlhead's categorisation that "Some individual investors may entrust all their investing to 'strategic bond funds' because they have no idea what allocation to use".

Jupiter has performed steadily and strongly over many years. Of the 85 strategic bond funds with FE scores on trustnet ranging from FE 11 to FE 73, Jupiter is the 21st least volatile at FE 29. That seems to put it at the moderate or maybe even moderate/cautious end of the spectrum and thus appropriate as a core holding. Yet Morningstar's style box rates it as holding low credit quality bonds and having high interest rate sensitivity - ie it scores 9/9 as most risky; and while Fund Calibre says the manager "is quite cautious in his approach and emphasises limiting potential losses in tough markets", HL's shortlist calls it " a more adventurous bond fund that can take more risk to generate greater long term returns".

So what should I make of these seeming contradictions, and just what should a core strategic bond fund holding look like?

grumiofoundation

tcallaghan93 said:

I think "strategic bond" is just a marketing term, but what do I know?

Why are you reanimating a 20 day dormant thread to say (basically) nothing?