Insight: A tough task awaits global bond funds

In the past 12 months, they have also benefited from the rebound in the oil price, with many issuers being companies that belong to energy or energy-related sectors. The upshot of this, though, is that these yields are now not so high – another potential headwind for global bond funds in future.

The standouts 

Figures from FE, as shown in Table 1, highlights the top 20 performing global bonds over five years. As the data shows, the best performing fund in the selection is the Gam Star Credit Opportunities, which grew to £2,078.8 based on a £1,000 investment over five years, equating to 15 per cent annualised growth. 

This return is based on the fund’s US dollar share class, which has received an artificial boost from that currency’s strength in recent years.

The fund’s largest weighting is to the financial services sector, according to Morningstar. 

Managed by Anthony Smouha, CEO of corporate bond specialist Atlanticomnium, the fund’s top 10 positions reflect this focus: its major positions include seven financial firms, including bonds issued by Aberdeen Asset Management, as well as some commodity companies such as Glencore that rebounded sharply last year.

Despite this, the fund’s overall one-year performance is less impressive. Its top holding, hedge fund Pershing Square, suffered poor returns last year, with a loss of 12.3 per cent between 1 January 2016 and the end of November 2016.

Much like Pershing Square, the second largest holding Lloyds Bank, suffered last year, contending with a 15 per cent profit decline in the third quarter and the widening of its pension deficit among other blows to performance.

Launched in July 2011, the Ireland-domiciled fund nonetheless rose 26.9 per cent last year, aided by sterling weakness. The fund says it typically holds investmen-grade (higher-quality) companies, but a yield in excess of 5 per cent indicates that it is also able to buy higher-yielding debt.

Sterling’s slump meant the 2016/17 period generally produced better results for the majority of the funds in the table when compared with the previous four years.

More than half of the funds in Table 1 focus solely on high- yield debt, indicating the extent of the returns on offer from this asset class over the past five years. The majority of the funds also managed to post positive returns in each of the discrete 12-month periods assessed. 

The exceptions were largely found in 2015/16; a more difficult period for some higher-yielding funds as a result of the falling oil price hurting energy companies.

One notable high-yield fund which did well during 2015/16 was Pioneer Sicav Euro High Yield. At a time when many peers struggled, the fund returned 2.8 per cent.