In Focus: Fixed income  

Passive bond funds out of favour in Bestinvest's top funds list

Passive bond funds out of favour in Bestinvest's top funds list
 

Passive corporate bond funds have seen their fortunes drop, as a number fell out of Bestinvest’s annual best funds list.

Six passive bond funds dropped out of the list this year, including a number of iShares funds. 

The bond market has suffered in 2022 as a result of rising interest rates, triggered by high rates of inflation.

Some of the passive funds to fall off the list include iShares’ corporate bond (0-5 year) and index-linked gilt ETFs, as well as Standard & Poor’s 1-5 year gilt and 1-3 year US treasury bond ETFs.

Lindsell Train’s global equity fund was dropped from the list, after seeing significant underperformance in the past year.

The fund has lost 5.7 per cent in the year to July 31, compared with a 3.8 per cent return for MSCI’s world index. 

“After initial fears that higher inflation would force central banks to raise rates sooner than originally expected, there has been some stabilisation in government bonds and high-quality corporate bonds,” the report said. 

“Nevertheless, they remain vulnerable to further inflation shocks in the year ahead.”

Funds are selected on the basis of 10 “commandments”, that include managers who are not “constrained by hugging benchmarks”, have a clearly defined approach, personally invest in their own funds and who are willing to limit the size of their funds if this starts to hamper the way it is managed.

Funds dropped from this year’s list

Legal & General UK 100 Index Trust 

Jupiter Income Trust 

LF Morant Wright Nippon Yield 

BlackRock UK Absolute Alpha 

European Opportunities Trust 

Invesco FTSE RAFI US 1000 ETF 

iShares $ TIPS 0-5 ETF 

iShares £ Corporate Bond 0-5yr ETF 

iShares £ Index-Linked Gilts ETF 

iShares Core GDP Corporate Bond ETF 

iShares Global High Yield Corp Bond ETF 

iShares S&P Small Cap 600 ETF 

SPDR Bloomberg Barclays 1-3 Yr US Treasury Bond ETF 

SPDR Bloomberg Barclays 1-5 Yr Gilt ETF 

SPDR S&P 500 ETF 

ASI UK Ethical Equity 

Lindsell Train Global Equity

Funds that have entered the list this year include a number of income funds, including BlackRock’s UK income fund, Montanaro’s UK income fund, Redwheel’s UK equity income fund and SDCL’s energy efficiency income trust.

“Equity income remains a useful source of income for investors at a time when cash accounts and bonds pay almost nothing,” the report said.

Funds added to this year’s list

BlackRock UK Income

Ninety One UK Alpha

Premier Miton UK Growth

Montanaro UK Income

Redwheel UK Equity Income

JPM Japan

Insight High Grade ABS

Atlantic House Defined Returns

Templeton Emerging Markets IT

LXI REIT

Picton Property Income

HarbourVest Global Private Equity

Pantheon International

SDCL Energy Efficiency Income Trust

Invesco Physical Gold ETC

Xtrackers IE Physical Gold GBP Hedged ETC

Vanguard FTSE 250 UCITS ETF

ES River & Mercantile UK Equity Smaller Companies

sally.hickey@ft.com