The £155.1m Standard Life Investments Strategic Bond fund was launched in February 2009 with the aim of providing a competitive total return from income and capital growth against its peer group, the Investment Association (IA) Sterling Strategic Bond sector.
Daniel McKernan, head of sterling investment-grade credit at SLI and co-manager of the fund, explains: “The fund is set up to have no real reference benchmark or any sort of bias. We’re trying to provide a truly global best-ideas fund, so we can invest in euros, sterling, dollars, investment grade, high yield, and also in government [bonds] and inflation and emerging markets [debt].”
Managed by a team of four, which also includes Mark Munro (investment director for credit), David Ennett and Sebastian McKay, Mr McKernan notes the different backgrounds of each manager brings distinct views and approaches to the portfolio.
“A few years ago the fund was run in almost individual pots [but] we have changed that slightly so we take a much more holistic… view. That sits nicely with not having a reference benchmark and looking at things much more on a risk-budget basis,” says the manager.
“So we can put some of the ideas that are appropriate from Gars [global absolute return strategies] into the fund, it also means Seb McKay, who sits in the multi-asset team, is free to throw in those ideas and we can chat about them as a team. It is best ideas, so stockpicking is extremely important to us, and really trying to find those [ideas] on a global basis.”
Mr Munro adds that while the credit team focuses on bottom-up research, “we don’t operate in isolation and some of the macro factors are still important to us”.
He explains: “Depending on our view and valuations and the wider macro, that will determine the overall risk profile of the portfolio. [This] allows us to put our best positions in the fund but then we still need to be able to weight them in a way we can dial up or dial down the risk.”
For example, he points out the multi-asset side produces a lot of macro insights, which are relevant for the amount of duration the fund will take and where it will place it.
“We have been very active in duration and at the end of last year/start of this year we added the best part of a year of duration back into the fund. So it has just under five years duration. That was on a view that disinflationary pressures, with the fall in oil and other commodities, would take longer to play out and is not a short-term phenomenon.
“But we have been quite nuanced in how we are taking duration. We’ve not just piled into the UK, we have put it back into Canada and also mainly into Europe through Germany, through longer-dated German bunds.”
The fund’s platform one accumulation share class, which has a risk-reward level of three out of seven and ongoing charges of 0.81 per cent, has delivered consistent performance, beating its IA peer group across three and five years.