A three-minute guide to strategic bond funds
It’s certainly been a tough year for the world of fixed income, with the combination of rising...
Inflation remained stubbornly high at 3% last month*, with the price of food and non-alcoholic drinks the biggest drivers, up 4.1%. Not good news in the run up to Christmas, when we are all spending more! According to Nationwide**, we each spend an average £645 on food, drink, party hosting, socialising and other festivities over the holiday period.
Luckily, for those investors keen to supplement their income on a regular basis, there are options. Darius McDermott, managing director of FundCalibre, highlights five funds, with a current yield above 4%,*** and which is distributed on a monthly basis.
The managers of this fund invest predominantly in dividend-paying, large-cap UK equities. The emphasis is on companies that can sustainably grow their dividend. To enhance the yield of the portfolio they will sell special contracts on certain portfolio stocks that pay them an income, in return for sacrificing some of the potential capital growth. This income-enhancing strategy should have the effect of smoothing returns, but does mean the fund will typically underperform in strongly rising markets.
This fund invests in government debt from emerging economies. This means it does carry a higher degree of risk than investing in the government bonds of developed nations. Aberdeen has a huge footprint in emerging markets investing. It is well known on the equity side but also has a well resourced, experienced and stable emerging market debt team, which has an extensive network of contacts in governments, central banks and the IMF.
This fund has a very flexible approach, taking advantage of changes in market conditions. It may invest across the whole range of fixed interest assets. It differs from most strategic bond funds due to a consistent weighting to asset-backed securities, an area in which the team specialises. The team believe that opportunities can be found among lower rated (i.e. higher risk) bonds that fewer analysts have the expertise to research thoroughly. Their specialist skills mean that they can, and do, invest in areas of the market where others may fear to tread.
This fund is designed to produce a high, sustainable and diversified income, along with strong absolute and relative growth through robust risk management. David and the team have a demonstrable capability for producing excellent results. Every asset can be risky in isolation and the team believe the best way of controlling risk is to diversify.
This fund invests in both bonds and equities from around the world, in pursuit of an attractive monthly income, as well as capital growth. The ratio between these two asset classes will be varied to suit market conditions. We particularly like this highly active approach to managing asset allocation. With two of our favourite stock pickers in charge, the fund’s diverse portfolio and monthly payment mandate may make it an excellent ‘all weather’ option for income-focused investors.
*Office for National Statistics, Consumer Price Index 12-month rate, October 2017.
**Nationwide, December 2016
***As at October 2017. Please note that the yield on these funds is not guaranteed and will fluctuate over time.