Fixed Income  

Top 5/Bottom 5: Global bonds

Top 5/Bottom 5: Global bonds

As investors continue their search for yield, many are beginning to look abroad for sources of income. Investing in the global fixed income market provides investors with greater diversity in their portfolio, as different regions will be impacted by economic indicators, such as interest rate changes or currency fluctuations, in different ways.

The global bonds sector tends to perform better over longer time period. Over the past five years the sector has returned 11.2 per cent, 5.3 per cent over three years, and 0.8 per cent over one year.

However, the short-term outlook is not as promising. The sector lost an average of 2 per cent over one month, 1.5 per cent over the past three months and 1.6 per cent over six months. As the terms of the bonds are set out at the start of the contract, investors should have a long-term outlook in mind.

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The yield that investors can expect from global bond funds will depend on which regions the bonds invest in. To qualify for the global bonds sector, the fund must hold at least 80 per cent of assets in fixed interest securities. All funds with more than 80 per cent fixed interest investments will fall into this category, even if they may have more than 80 per cent in a particular geographic sector. The exception to that rule is if that sector is the UK, in which case the fund would be classified under the relevant UK heading.

The best performing global bond fund, judged by cumulative performance over the past year, was tied between the Carmignac PTF Global Bond F GBP Acc Hedged and Pimco GIS Global Bond Ex US Inst Acc USD - but the Carmignac fund has performed better year to date at 7.2 per cent over Pimco’s 0.5 per cent. The Carmignac fund returned 16.4 per cent over one year and 18.9 per cent over three years. It invests 74.9 per cent in global government fixed interest, 24.4 per cent in global corporate fixed interest, and the remainder in money markets.

The Carmignac fund’s largest holding is 8.6 per cent in Italian government bonds paying 4.5 per cent and which mature in July. The next biggest holding is 7.9 per cent in United States Treasury notes paying 1.25 per cent and maturing in September, and 6.4 per cent in New Zealand government bonds paying 6 per cent when they mature in December 2017.

The worst performing fund over the past year was the Schroder ISF Global Credit Duration Hedged C Dis NAV EUR, which invests 39.9 per cent in US fixed interest, 10.7 per cent in UK fixed interest, 41.9 per cent in others, and the remainder in cash. The fund invests most heavily in industrials at 35.6 per cent, followed by financials at 34.6 per cent, utilities at 7.8 per cent, and 22 per cent in others.

Returns on global bond funds can vary dramatically depending on the sectors and regions in which the fund invests, so it is best to examine each fund individually before making the choice to invest.

Previous Top 5/Bottom 5:

Europe including UK

Japan funds

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Top 5/Bottom 5 Global bond funds, one year to 26 May 2015
Top 5
Carmignac Ptf Global Bond F GBP Acc Hedged£1,164.10
Pimco GIS Global Bond Ex US Inst Acc USD£1,164.10
Pimco GIS Global Bond Ex US E Inc USD£1,153.80
GAM Star Credit Opportunities USD Acc£1,138.50
M&G Global Macro Bond CH Gr Acc USD£1,136.90
Bottom 5
Pimco GIS Euro Income Bond E Inc£894.90
Pimco GIS Euro Low Duration E£889.80
Pictet Latin American Local Currency Debt P dy GBP£888.10
Pimco GIS Euro Short-Term E Acc EUR£886.30
Schroder ISF Global Credit Duration Hedged C Dis NAV EUR£875.50
Figures as of 26 May 2015.
Source: FE.