The right kind of risk helps bond fund double its money
DOuBLInG the size of your fund in the space of a year must be some sort of indication that the managers are doing a good job.
David Roberts, co-manager of the Aegon Strategic Bond fund, enjoys the flexibility of being able to invest across the fixed-income spectrum. The fund aims to take advantage of the opportunities across global bond markets, according to Roberts.
He said: “We invest in appropriate parts of the markets
“We invest in appropriate parts of the markets where the risk is attractive”
where we think the risk is attractive. At any time the fund can be 100 per cent invested in G7 government bonds, or investment grade corporates, or high yield corporates.”
The fund normally has between 20 and 80 holdings and is currently at its upper limit, principally because of the large inflows and the fact that it is about 70 per cent invested in corporates, where smaller stakes are taken in order to avoid increasing the stock-specific risk.
Roberts was keen to stress what the fund does not do.
“There are no currency plays at all,” he said.
“Despite the fact that over the half the fund is invested in nonsterling-denominated issues, it is 98 per cent hedged back to sterling. It’s not that we think trying to make money from currency is bad, it’s just a different kind of risk and one we don’t want in this fund.”
One of the core holdings in the fund is BAA. “The bonds are 90 per cent secured on Heathrow, which has been remarkably resilient during the global economic downturn, with its passenger and cargo numbers holding up much better than other European hubs such as Schipol in Amsterdam,” Roberts said.
At present BAA bonds yield about 2.25 per cent more than equivalent maturity gilts and about double the excess yield on similarly rated utility companies.
Roberts expects this differential to narrow, as the market gets more comfortable with the fundamental outlook for the company.
Investors in the fund enjoyed a spectacular 37.3 per cent return last year, but Roberts was eager to manage expectations for 2010.
“I said at the end of 2009 that it would be difficult for clients to make money from any asset class this year. I felt that a total return of 10 per cent would be welcomed by the majority of our investors and thankfully we’re on track to deliver that this year”.
l For more information on the Aegon Strategic Bondfund call 0800454422 or visitwww.aegonam.co.uk Barry O’neill is a chartered financial planner with Thomson Shepherd Ltd (incorporating Coggans Wood).