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The top 10 performing bond funds since the ‘taper tantrum’

24 May 2018

Five years on from the taper tantrum of 2013, FE Trustnet looks at the 10 best performing bond funds.

By Henry Scroggs,

Reporter, FE Trustnet

A number of bond funds have managed to produce solid returns over the past five years since the ‘taper tantrum’, according to data from FE Analytics.

The so-called ‘taper tantrum’ was the market’s reaction to the beginning of the Federal Reserve’s unwinding of quantitative easing (QE) that sent a ripple through global bond markets in 2013.

It was first hinted at on 22 May 2013 and although no tapering took place until October the following year, global markets immediately went into a frenzy and within a month all bond markets had fallen.

The worst hit were emerging markets as the average IA Global Emerging Markets Bond fund lost 11.72 per cent between 22 May 2013 and 25 June 2013. Most bond markets lost on average 4 or 5 per cent.

Within three months of the announcement, yields on US 10-year Treasuries almost doubled from roughly 1.6 per cent to just under 3 per cent.

However, this impact was only temporary, because a year on all-but-two bond sectors had made up the losses they incurred, with IA Global Bonds and IA Global Emerging Markets Bond the exception, not making a positive return until early to mid-2016 when the bond bull market reached its peak and yields were at their lowest.

While this event may have scared some investors off from investing in bonds, the following five years has proven to be a good time to own the asset class.

Now on its five-year anniversary, FE Trustnet looks at the 10 bond funds that have produced the highest total return since the ‘taper tantrum’.

Performance of fund vs sector since ‘taper tantrum’

 

Source: FE Analytics

At the top of the list is the five FE Crown-rated GAM Star Credit Opportunities fund, which has been run by FE Alpha Manager Anthony Smouha since its inception in 2011 with Gregoire Mivelaz joining him in 2015.

During the month after the Fed’s announcement the $4.9bn fund incurred a loss of 3.54 per cent. Although a negative return, this placed it in the top quartile of the IA Global sector.

However, it recovered well in the years following and has made 61.52 per cent since the ‘taper tantrum’, a 49.04 percentage point gain on its peer group.

Architas investment director Adrian Lowcock said the fund has outperformed by sticking to its focus on attractive yields, profitability and cash generation.

“The hunt for yield has pushed the fund into financials which have benefitted as global markets moved away from the precipice and financials slowly recovered and returned to profitability following the financial crisis.”

GAM Star Credit Opportunities has an ongoing charges figure (OCF) of 1.13 per cent.

The second best performing bond fund since the ‘taper tantrum’ is the Royal London Sterling Extra Yield Bond fund, which has been managed by FE Alpha Manager Eric Holt since its launch in 2003.

The £1.6bn fund holds five FE Crowns and has an OCF of 0.83 per cent.

It is the only other fund in the list that has produced a top quartile performance during the month after the Fed’s announcement despite losing 3.55 per cent.

Performance of 10 best-performing bond funds between May and June 2013

 

Source: FE Analytics

A strong recovery has led it to gain 45.56 per cent over the past five years, which is 28.26 percentage points more than its average IA Sterling Strategic Bond peer.

Manager Holt told FE Trustnet earlier this week that he attributed the strong performance of his fund to two things: “One is the range of opportunity that’s open to us in the Sterling Extra Yield fund because it isn’t a fund that’s benchmarked against a high yield index.

“It’s also the ability to invest across quite a broad spectrum of assets where we see value. And I think that flexibility is really, really important.”

Investment director at Architas Adrian Lowcock said that high yield has done well on the back of low interest rates and that Holt has “been in the right asset class.”

While high yield has done well and gained 19.75 per cent over the five years since the ‘taper tantrum’, it is index-linked gilts that have returned the highest performance figures of 35.80 per cent, nearly 15 percentage points more than any other sector.

Performance of fixed income sectors since ‘taper tantrum’

 

Source: FE Analytics

One fund in the IA UK Index Linked Gilts sector that has done well over the period since the ‘taper tantrum’ is the Insight UK Index Linked Bond fund.

Although the initial market reaction to the Fed’s hint that it would start tapering QE saw the fund lose more than 5 per cent of its value, it has performed well in the years following and has given a total return of 42.73 per cent in the period since the ‘taper tantrum’.

Two Schroders funds feature in the list of the 10 best-performing bond funds since the ‘taper tantrum’.

Schroder High Yield Opportunities posted performance of 41.36 per cent over the past five years, while Schroder ISF Global High Yield posted performance of 40.30 per cent. Although Schroder High Yield Opportunities lost 4.13 per cent in the initial market reaction to 25 June 2013, Schroder ISF Global High Yield was hit harder and lost over 7 per cent.

The other company to have two funds feature on the list is Pimco with the Pimco GIS Euro Long Average Duration and the Pimco GIS Global Bond Ex US funds, which returned 42.79 per cent and 39.80 per cent respectively.

10 best-performing bond funds since ‘taper tantrum’

 

Source: FE Analytics

One passive fund featured in the list: Vanguard UK Long Duration Gilt Index.

The fund, which tracks the Bloomberg Barclays UK Government 15+ Years Float Adjusted index, lost 5.32 per cent in the initial market reaction but has made a 40.32 per cent return over the entire period, 3.45 percentage points less than its benchmark. The fund’s peer group, the IA UK Gilts sector, returned 21.15 per cent in the same period.

The final two funds in the list are also gilt funds: Newton Long Gilt and Aberdeen Sterling Long Dated Government Bond.

Both lost more than 5 per cent in the month after the Fed’s announcement in May 2013 but Newton Long Gilt brought in higher returns of 42.24 per cent while Aberdeen Sterling Long Dated Government Bond returned 40.48 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.