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Alternatives to strategic bond funds

This article is part of
Guide to ‘Strategic’ Bond Funds

Azim Meghji, head of UK fixed income at Santander Asset Management and fund manager of the Santander Strategic Bond fund, says an alternative to a strategic bond fund, would be to create a bespoke solution.

Mr Meghji says in order to do this advisers would have to look across a range of fixed income investments, each with different characteristics and risk/reward profiles, such as money market, government, corporate, high yield, and absolute return instruments.

Assuming that the investor does require exposure to fixed interest as an asset class, Carl Lamb, managing director at Almary Green, says the main alternative would be to hold a range of specialist fixed interest funds such as UK gilts, corporate bonds.

Mr Lamb says advisers could also consider using absolute return funds, although he warns these may be even more fraught with difficulty as funds within that sector are even more diverse in style and aims than the Sterling Strategic Bond sector.

Depending on your client’s needs and appetite for risk, Stuart Rumble, investment director for fixed income at Fidelity Worldwide Investment, says a general corporate bond fund with some allocation to high yield could act as an alternative.

While these funds do not have the buffer of an allocation to government bonds, Mr Rumble says a blend of high quality investment grade corporates and well-researched high-quality high yield names can offer investors an attractive blend of some capital appreciation combined with income.

Gill Hutchison, head of investment research at City Financial, says if she was looking for an alternative to using a strategic bond fund she would opt for a more diversified blend of funds to cover different fixed income segments.

She says some asset allocation tools can help with this process.

Ms Hutchison says: “The benefit of a more granular approach to populating the fixed income portion of a portfolio is that it ensures broad coverage at all times, from conventional government bonds to inflation-linked bonds, investment grade bonds and high yield bonds.”