UK active bond funds have outperformed their passive counterparts in the past year, according to new figures.
Active bond funds lost an average of 22.41 per cent in the year-to-date, compared with an average loss of 26.15 per cent by passive funds.
Some 800 UK bond funds covering gilts, corporate bonds, high-yielding and diversified funds were covered by Bowmore Asset Management.
Chief investment officer at the company, Jonathan Webster-Smith, said actively managed funds were able to start rebalancing portfolios towards shorter-duration bonds and away from longer-duration bonds as interest rate rises began to accelerate.
He added that, given the “unprecedented” fall in bond markets this year, which have seen gilt yields hit record highs, index-linked passive bond funds have not been the place to be.
“A lot of investors reliant on passive bond funds have been left with the unenviable choice of selling and crystallising losses or holding and hoping the fall in bond prices doesn’t last too much longer,” he said.
“While passive bond funds do have a part to play for many investors – particularly during more benign market conditions – falling markets can allow the best active managers to prove their value through outperformance.”
Passively managed bond funds | YTD returns |
Vanguard UK Government Bond Index Fund | -33.29% |
iShares GiltTrak Index Fund | -29.25% |
HSBC UK Gilt Index Fund | -26.77% |
Quilter Investors Gilt Index Fund | -26.55% |
AI UK Gilts All Stocks Index Fund | -26.55% |
Source: Morningstar
The UK bond market has seen huge volatility in the weeks since the former government announced a raft of unfunded tax cuts.
Experts have said this volatility, and the reduction in liquidity driven by rising interest rates, will make portfolio diversification much more attractive.
sally.hickey@ft.com
