Well-known fixed income funds such as Invesco Perpetual Corporate Bond and Artemis High Income have established long track records of relatively consistent outperformance for investors, research by FE Trustnet shows. 
In this series, we have looked at Investment Association funds with track records of 20 years or more, then examining their returns over 61 rolling five-year periods spanning 30 June 1998 and 30 June 2018. After reviewing all the funds, a shortlist of those with an average five-year decile score of 3.5 or lower was created.
We ran this study across the IA Global Bonds, IA Global Emerging Markets Bond, IA Sterling Corporate Bond, IA Sterling High Yield, IA Sterling Strategic Bond, IA UK Gilts and IA UK Index Linked Gilts sectors to see if any of their members were able to stay near the top of the peer group throughout their history.
Across all of the fixed income sectors in the Investment Association universe, only six made it onto the shortlist. In the following article we take a closer look at these funds, ranked in order of their average decile ranking.
Newton Long Gilt
The bond fund with the best average decile ranking is Newton Long Gilt with its score of 1.21. The £37.6m fund has been in the IA UK Gilts sector’s top quartile for 50 of the 61 five-year periods we examined in this research and it has never been worse than third-decile over five years.
Furthermore, the fund generated a 287.65 per cent total return between 30 June 1998 and 30 June 2018, which is the highest cumulative return in the peer group over this time frame.
Performance of fund vs sector and index between 30 June 1998 and 30 June 2018
Source: FE Analytics
The five FE Crown-rated fund has been managed by Howard Cunningham since February 2010. The portfolio launched in March 1979 and managers since then include Paul Brain and Ailsa Kegler.
In his most recent update, Cunningham said: “With a Brexit transition deal seemingly in doubt, trade disputes escalating and inflation moving back towards target, in our view balancing risk and reward favours remaining only slightly shorter duration than the index.
“As significant risks remain around UK politics, we think some overseas diversification is also still appropriate.”
Newton Long Gilt has an ongoing charges figure (OCF) of 0.29 per cent and is yielding 1.48 per cent.
Natixis Loomis Sayles Multi Sector Income
In second place with an average five-year decile ranking of 1.9 over the past two decades is Natixis Loomis Sayles Multi Sector Income. This fund has spent 24 of the 61 periods examined in the IA Global Bonds sector’s first decile.
The $1bn fund, which is has been managed by Dan Fuss since its launch in June 1997, has also made a 369.23 per cent total return over the 20 years we looked at, which is the highest return of the peer group.
Fuss was joined on the portfolio by Elaine M. Stokes and Matthew J. Eagan in February 2007 while Brian Kennedy was named the fourth co-manager in June 2016.
The fund has a value-driven approach, which often sees it buy assets amid challenging market conditions and leads to it being one of the more volatile members of its sector. For example, the fund bought Irish bonds in late 2010 when the country was caught up in the eurozone debt crisis; it also generated strong returns in 2016 and 2017 after buying selected energy bonds when they were selling off in 2014.
Performance of fund vs sector between 30 June 1998 and 30 June 2018
Source: FE Analytics
Natixis Loomis Sayles Multi Sector Income has a total expense ratio of 1.25 per cent.
Newton Index Linked Gilt
This is the second fund on the shortlist to be managed by Newton’s Howard Cunningham. Newton Index Linked Gilt has an average rolling five-year decile ranking of 2, having been in the IA UK Index Linked Gilt’s sector’s top decile in 20 of the 61 periods.
Its 323.13 per cent total return over the 20 years we examined is the highest in the peer group.
Like Newton Long Gilt, previous managers of the fund – which launched in February 1998 – include Paul Brain and Ailsa Kegler.
Newton Index Linked Gilt has an OCF of 0.27 per cent and is yielding 1.68 per cent.
Artemis High Income
Next up is Alex Ralph’s £1.3bn Artemis High Income fund, which has a five-year average decile score of 2.36. Some 41 of the 61 five-year periods included in this research saw the fund sit in the top decile of the IA Sterling Strategic Bond sector.
On a 20-year view, the fund has made a total return of 322.60 per cent – which is the highest of its peer group. This has come with the best risk-adjusted returns (as measured by the Sharpe, Sortino and Treynor ratios) of its sector and the highest alpha score.
Performance of fund vs sector between 30 June 1998 and 30 June 2018
Source: FE Analytics
The approach behind the fund aims to generate a high income without taking excessive risks. The need to generate a high yield means the fund tends to invest more heavily in higher-risk assets, so it can be more volatile than the average bond portfolio.
The FE Invest team, which has the fund on its Approved List, said: “This fund could be suitable for investors looking for a high income and who understand it is necessary to take more risks to obtain it.
“To obtain a higher yield, the managers buy lots of higher-yielding bonds; this exposes them to credit risk, which is historically more correlated to equities. For this reason, the fund does not suit those looking for a bond fund to diversify away from equities.”
Artemis High Income has a 0.69 per cent OCF and is yielding 5.53 per cent. Managers that have worked on the fund since its launch in May 1995 include Adrian Gosden, Adrian Frost and George Luckraft.
Invesco Gilt
The Invesco Gilt fund, which has been headed up by Sean Connery since March 2016, has posted a 2.52 average decile ranking for the two decades of rolling five-year periods we reviewed. Ten of these saw the fund in the IA UK Gilts sector’s top decile.
Between 30 June 1998 and 30 June 2018 the fund made a 175.61 per cent total return, which is the second highest of its peer group.
Invesco Gilt has a 0.88 per cent OCF and is yielding 1.20 per cent. However, it is closed to new investors.
Invesco Perpetual Corporate Bond
The final longstanding fixed income fund to make it onto this study’s shortlist is Invesco Perpetual Corporate Bond, with its five-year average decile ranking of 3.36. Our data shows that the fund was top decile in 21 of the 61 periods under review.
The £4.5bn fund made a 199.46 per cent total return between 30 June 1998 and 30 June 2018. This is the second highest in the IA Sterling Corporate Bond sector, out of 17 funds with a long-enough track record.
Performance of fund vs sector between 30 June 1998 and 30 June 2018
Source: FE Analytics
Paul Causer has run the portfolio since its launch in July 1995 and he was joined by FE Alpha Manager Michael Matthews in March 2013. Paul Read also worked on the fund between July 1995 and November 2016.
Square Mile Investment Consulting & Research gives the fund an ‘AAA’ rating. Its analysts said: “This fund is run by highly experienced managers Paul Causer and Michael Matthews, who have proved themselves capable of producing strong returns over longer periods.
“Their careful process, and in particular their emphasis on risk, identifies suitable value opportunities which have generated good long-term performance for the fund, although investors should note that these can take some time to play out and there can be periods where the fund's performance may differ substantially from that of the benchmark.”
Invesco Perpetual Corporate Bond has an OCF of 0.66 per cent and is yielding 3.06 per cent.