Bonds: have they performed as expected?

Back in April we asked the question: is now the buying opportunity of the century for bonds? Having spoken to a number of bond fund managers it was clear that the global market sell-off in March had made the asset class look very good value for the first time in many years.

For active managers able to discriminate between those companies with sufficiently strong balance sheets to be able to survive the next few months, and those that faced extreme hardship and possibly bankruptcy, the opportunities had opened up nicely, leading a number to comment that “Bonds are the bargain of the century” and “It’s probably the best value investment grade market I have seen in my career”, as well as “Investors should be hoarding credit like they’re hoarding toilet rolls.”

Five months on, we take a look at how bond funds have performed.

Best returns for a number of years

Looking at the three main sector averages, so far, so good. The IA Sterling Corporate Bond sector is up 11.48%* on average since 23 March 2020, and the IA Sterling Strategic Bond sector is up 12.72%*. You have to look back as far as 2012 for better returns over a whole calendar year**.

The IA Sterling High Yield Bond sector is up a huge 21.83%* - more than any returns it has posted over the past 10 calendar years**.

Performance of Chelsea Selection bond funds

Taking a closer look at the bond funds on the Chelsea Selection, GAM Star Credit Opportunities fund is the best performer since the market lows. From 23 March to 11 August it has returned 20.77%*. It is followed by Artemis Corporate Bond fund (17.86%) and Baillie Gifford High Yield Bond fund (17.79%).

Chelsea Selection bond fund performance since the market low:

Fund Percentage returns 23 March to 11 August 2020*
IA Sterling Corporate Bond funds  
Artemis Corporate Bond 17.86%
BlackRock Corporate Bond 15.11%
Royal London Corporate Bond 10.24%
TwentyFour Corporate Bond 8.54%
IA Sterling High Yield Bond funds  
Baillie Gifford High Yield Bond 17.79%
Royal London Short Duration Global High Yield Bond 14.27%
IA Sterling Strategic Bond funds  
Artemis Strategic Bond 10.28%
Baillie Gifford Strategic Bond 14.66%
GAM Star Credit Opportunities 20.77%
Invesco Monthly Income Plus 16.83%
Janus Henderson Strategic Bond 17.63%
Jupiter Strategic Bond 9.27%
Man GLG Strategic Bond 9.81%
Nomura Global Dynamic Bond 16.67%
TwentyFour Dynamic Bond 15.50%

Commenting on the outlook for the asset class, TwentyFour Asset Management said: “We firmly believe the contractual nature of coupons versus the discretionary element of dividends means that predictable and attractive income will continue to be best provided from fixed income. The income is “fixed” after all.

“However all is not necessarily rosy in the world of debt. Government bond yields are close to all-time lows, in fact negative in many cases. The main area of optimism for us in the investment grade space is financials. By and large banks and insurers have given a good account of themselves during this crisis, in stark comparison to 2008 where they were the cause of the crisis. Twelve years on, capital is the best it has probably ever been, underwriting standards have been far better, meaning provisions have been remarkably low, emergency liquidity facilities exist to ensure no bank goes bust for liquidity reasons, and lastly, spreads still remain attractive. From a valuation and fundamental credit perspective, our belief is that there are no better assets.”

*Source: FE Analytics, total returns in sterling, 23 March to 11 August 2020
**Source: FE Analytics, total returns in sterling, calendar years 2010-2019
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers do not constitute financial advice.

Published on 11/08/2020