Fund selectors have criticised strategic bond managers for not taking advantage of the arsenal available to them after many were caught off guard over the UK’s decision to leave the EU.
With sovereign bonds rallying following the vote in expectation that monetary policy will remain lower for even longer, strategic vehicles that are typically biased towards credit have come under attack.
Speaking at a Thomson Reuters Lipper fund selector conference, FundCalibre consultant Tony Yousefian said: “A genuine strategic bond [fund] is hard to find and you have to look at the global bonds sector to get anywhere near a fund that plays both corporate and sovereign bonds,” he said.
The IA Sterling Strategic Bond sector has returned 2.3 per cent since June 23 compared to 8.3 per cent from its Global Bonds counterpart.
With investors using bond markets as safe havens, Mr Yousefian said sovereign bond yields in the US and UK faced further downwards pressure.
“[US and UK] stretched valuations will become even more stretched. That is likely to continue to favour fixed income on a global basis; it’s a much harder call to make nowadays than just the difference between investment grade and high yield.”
Other buyers criticised managers for not using the flexibility granted to them by their mandates. Wellian Investment Solutions chief investment officer Richard Philbin said strategic bond managers rarely changed tack to respond to conditions.
He said: “I’d love to actually find a strategic bond manager. They have a wide range of instruments they can play with, but very rarely can you find a strategic bond manager who is triple-A one month and triple-C the next, or long and then short.”
Former Aberdeen multi-manager head Mark Harries said managers in the sector remained creatures of habit.
“They might have a core holding and trade around the edges. I’m not saying that’s a good or a bad thing, but when someone is strategic and can go anywhere across the scale, generally they don’t.”
Mr Yousefian concluded: “The sector has a number of managers who think running a strategic fund means finding the difference [spread] between investment grade and high yield.”
He argued dynamism from managers was going to become important in the coming year, pointing to a potential backdrop of struggling economic growth but higher inflation.
Mr Yousefian said this would require funds to increase their exposure to global securities, but may also mean retaining investment grade debt positions.