An unconstrained, highly flexible bond fund. The managers are prepared to express strong views according to their perceptions of absolute and relative value. In so doing, they are not afraid to stand apart from the crowd. Within its sector, the fund features in our 'High Conviction' category.
The fund’s KIID Synthetic Risk and Reward Indicator (SRRI) is 3. This is a regulatory measurement that is, where possible, calculated from the volatility of its weekly performance over a five-year period. A score of 3 means the fund’s historic volatility is between 2% and 5%.
The team’s approach can result in variable relative risk and return outcomes over time, as they flex the portfolio according to their macro-economic views. Investors should therefore be prepared for outcomes that can differ from mainstream corporate bond indices and peer group funds. Different share classes could have differing SRRI scores.
The fund is co-managed by Stuart Edwards and Julien Eberhardt. Mr Edwards joined the Henley-based Fixed Interest Europe team in 2006 and has managed a range of fixed income funds since 2011. He was appointed co-manager of the fund in September 2020. Mr Eberhardt is a fund manager and senior credit analyst, having joined the team in 2008. He was appointed co-manager of the fund in July 2021. The Fixed Interest team works in a highly collegiate manner, allowing the managers to draw upon the collective effort to locate the highest conviction ideas for this flexible fund.
This unconstrained fund seeks to benefit fully from the flexibility that is inherent in the team’s investment approach. At the core of their approach is the belief that fixed income markets are mostly efficient, but that they continually present opportunities. These may arise because market pricing tends to overshoot, because market participants have differing objectives or because some investors operate according to rigid investment constraints. They seek to exploit such inefficiencies through fundamental analysis and a strong emphasis upon valuation.
Within the suite of funds managed by this team, this fund has the most flexible mandate. Therefore, there are few constraints on positioning and the only rules governing portfolio construction are those that apply to the IA £ Strategic Bond sector. Typically, the fund holds between 80 and 120 securities and currency exposures are usually hedged back to sterling. The team will only commit to investments when they believe they offer value and they are prepared to hold large cash positions at times when opportunities are lacking. Risk controls are multi-faceted. Fund managers’ own risk assessments are supplemented by the Investment Oversight team, while the regular CIO challenge and the Independent Risk Function provide formal oversight of the fund.
The structure of the portfolio is driven by the team’s macro-economic views and their consequent identification of value across the broad bond sectors, including government bonds, investment grade bonds and high yield credit. Their analysis of the economic cycle is designed to predict monetary policy developments and the trend in the pricing of credit risk. These factors inform the general strategy for the portfolio in terms of duration, credit risk and the areas of preference on the yield curve. They can often lead to high-conviction preferences for particular industries and/or segments of the corporate bond universe.
This research is complemented by bottom-up company research, undertaken by the team of credit analysts. Analysts review the fundamental credit quality alongside the environmental, social and governance (ESG) quality of an issuer. They then assign an issuer fundamental rating (AAA, AA, A, BBB, BB, CCC, D) and an assessment of the credit trend (improving, stable, deteriorating over the next 12-18 months) for what is typically a senior unsecured security of that issuer. In addition, each issuer receives a proprietary overall ESG grade. The issuer fundamental rating encapsulates the creditworthiness of a particular issuer using financial metrics. Such research supports relative value analysis between issuers and between different bonds issued by the same company.
Formal documentation, including the fund prospectus and the KIID, should be sought directly from the asset manager. For ease of reference, a link to the ASSET MANAGER WEBSITE can be found above.
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