Fixed income funds struggle to deliver returns – F&C FundWatch

Rising rates and central bank policy meant fixed income was the most difficult asset class to pick a winning fund from in Q4 2013, F&C FundWatch’s latest survey revealed.

According to the latest FundWatch survey from F&C Investments’ multi-manager team, the IMA Global Bond and IMA £ Strategic Bond sectors failed to record any funds with consistent top quartile returns over three years whilst the IMA £ Corporate Bond sector recorded only one fund.

The most consistent sectors for top quartile returns were the IMA Japan and IMA Global Emerging Markets sectors, where 4.3% of funds from each category met this target.

The newly created IMA Global Emerging Markets Bond sector emerged as the worst performing of the 37 IMA sectors, returning -2.2% during the quarter. Launched on 31 December 2013, the performance of the sector for the quarter is based on the historical performance of the component funds.

The quarter reflected a continued risk-on trade, with the IMA UK Smaller Companies sector recording the highest returns for a second quarter in a row, returning 10.1%. This was followed by the IMA European Smaller Companies and IMA North America sectors. The IMA £ High Yield sector was the top performing bond sector rising 3%, reinforcing investors’ positive risk appetite.

Rob Burdett, co-manager of multi-manager at F&C Investments, commented: “One of the most striking attributes from the analysis is the continued inconsistency of the statistics from the fixed income sectors. Bond funds remain one of the most difficult areas to pick winning funds from, and this trend comes at a time when many are questioning the risk-reward characteristics of the asset class.

“Last year we saw equity markets rally, with some reaching record highs, and low market volatility. Against this backdrop we were surprised to see that the overall total number of funds recording top quartile performance consistently over three years was not higher, and was instead at the bottom of the historic range.”



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