Henderson Strategic Bond: Jenna Barnard

Jenna Barnard, who co-manages the fund with John Pattullo, explains that while the fund had exposure to gilts and German bunds in the second half of 2011, it “wasn’t sufficient relative to the sector”.

“That’s been disappointing, that we didn’t participate fully in the gilt rally and also credit sold off in the second half of last year with risk assets. So performance is relatively disappointing as we were more skewed towards the credit side of things, corporate bond exposure, and relatively underweight gilts.”

In 2011, the fund posted a discrete loss of 2.24 per cent, compared with an average 2.52 per cent return from the IMA Strategic Bond sector.

However, Ms Barnard points out that keeping this position has already helped performance this month, with the fund posting a discrete return of 1.64 per cent between December 31 and January 18, compared with the IMA sector average of 1.4 per cent, according to Morningstar.

Ms Barnard adds: “The positioning hasn’t changed enormously. We’re happy with the corporate bonds we own in terms of default risk, and we think they’re providing an attractive income. We’re focusing on ‘sensible carry’, so corporate bonds yielding broadly between 5-9 per cent is kind of our hunting ground for this year.

“We think anything yielding much more than 10 per cent inherently has quite a lot of default risk and given the economic uncertainty, that’s not really where we want to be hunting around. Equally, we think gilts that are 2 per cent or less today isn’t attractive value. It seems artificial to us and a function of what the Bank of England is doing in terms of quantitative easing, as well as everybody rushing for safety at the end of last year.”

The managers are therefore excluding the two extremes and positioning the portfolio in the middle ground.

“We genuinely think that the kind of credits in that area we’re selecting don’t have much default risk. They’ve obviously got to market risk based on daily headlines from Europe and so on, but we’re happy holding those over the medium term and clipping the coupons and compounding them up.”

Holdings include media and communication names such as Virgin Media and Kabel Deutschland, which are yielding roughly 6.5 per cent and 5.5 per cent respectively, although the fund also likes some UK insurers, including Legal & General and Standard Life, which are yielding between 7-11 per cent.

Ms Barnard says: “We’re avoiding European banks for obvious reasons, but we see value in some of the UK banks that have sold off in sympathy somewhat, so some of the Lloyds bonds. But our overall financials weighting is just under 25 per cent of the portfolio and banks are about 7 per cent, so we’re being obviously selective in that area. But we do think the insurers in particular were penalised really heavily in the back end of last year.”