The standout funds in 2021, explained (part 1)

GLOBAL FIXED INCOME, HEDGED
Pimco
GIS Diversified Income Fund

The past year proved a particularly volatile period for global fixed income markets, with bonds suffering enormous sell-offs during March 2020, as the pandemic really took off, only to rebound with alacrity by April.

Pimco’s GIS Diversified Income Fund weathered the year well, and only continued to burnish its performance over longer time periods. This points in part to the flexibility of the fund, which can invest across an array of bond types, from global investment grade and junk bonds, through emerging markets and even into more specialised areas such as securitised debt.

The US fixed income-focused fund manager notes that this approach, which also focuses on avoiding too much high beta exposure or equity-like risk exposure. As a result, it says the fund’s returns lie in line with the highest earning credit sectors, while boasting 20% to 30% lower volatility.

Similar to its hedged peer, Wellington Management’s Global Credit Plus Fund is designed to be an all-weather fixed income product, that offers decent return whatever the surrounding market conditions.

The fund’s eight-strong team of credit specialists is led by Louis Chabrier and Joseph Ramos, who between them boast 59 years of experience. The team focuses upon a combination of factors when investing, drawing upon research that covers macroeconomics, foreign exchange, equity, ESG and commodities, from both top-down and bottom-up perspectives. They then use this to invest across an array of investment strategies, that they seek to ensure are uncorrelated to drive returns across market conditions.

They put this strategy to good purpose during 2020, using their sophisticated approach and experience to help the fund ride through the volatility and spot good investments to take advantage of.

The result was that the team reported a whopping 12.44% returns over the year to December 20, 2020, while it also offered annualised returns of 6.75% and 6.9% over three and five years, respectively. Not bad at all, for a global credit fund.

EMERGING MARKET DEBT
Ninety One
GSF Emerging Markets Investment Grade Corporate Debt Fund

As interest rates have remained stubbornly low across much of the world, asset owners and fixed income investors have had little choice but to slowly head down the credit risk spectrum in search of returns. That has led to a lot more interest in investment grade debt from companies and in emerging markets.

Amid this increasingly popular area, Ninety One (formerly Investec Asset Management) stood out for a fund that focuses on both. Its emerging markets corporate-focused bond fund targets areas most likely to offer investors some juice in their fixed income portfolios, albeit only as long as they have been prepared to accept more risk.

It has proven to be a highly successful strategy. The fund reported a one-year investment return of 12.95% for the year to December 20, 2020, while its three- and five-year figures stood at 8.9% and 9.08%, respectively. At a time of low rates, those are some healthy levels of return to be enjoying.

How has it managed it? Ninety One’s funds team focuses on finding pricing inefficiencies in the emerging market universe, which is by its nature sprawling and multi-faceted. It delves into the nitty gritty of the markets, seeking bottom-up information on borrowers. Given the success it can report, including through a very difficult year, they are doing this well.  

JAPAN FIXED INCOME
Manulife Investment Management
Japan Fixed Income Strategy Active CDS Fund

Debt investing in Japan is never a simple prospect, given the nation’s longstanding zero interest rates. However, Manulife Investment Management’s Japan Fixed Income Strategy Active CDS fund has managed to demonstrate that decent returns are still possible in the country.

The fund house reported investment returns of 5.36%, 4.51% over three years and 5.03% over five years, respectively – very compelling levels given the fact bank deposits do not earn investors anything at all. It has done so by focusing on anomalies across issuers, interest rates, maturities and ratings that they could take advantage of, while also employing investments into hybrid bonds and tactically using derivatives, both of which have helped it outperform.  

The fund’s strength and market knowledge paid off during the period of volatility during March 2020, when it stayed the course and remained overweight in credit. That decision paid off well when markets rallied during the subsequent weeks, and helped put a gloss on the fund’s performance.

ASIAN FIXED INCOME, US DOLLAR
PineBridge
Asia USD Investment Grade Bond Strategy Fund

Asia’s fixed income bond markets have been gaining more global investor attention as they seek out yield, and Pinebridge’s investment grade bond strategy vehicle is likely to be turning many heads, given its sustained performance over several years.

The fund boasted returns of 6.35% over five years and 7.32% over three. But the cap on that was the barnstorming return of 9.77% that it returned in the year to December 20, 2020, despite investing purely into US dollar-denominated investment grade bonds in the region.

As with many of the other fixed income asset class winners, Pinebridge’s regional fixed income team exploited the yield turbulence of March as the Covid-19 pandemic spread, sticking to their positions, selectively buying undervalued bonds, and benefiting once yields began roundly tightening once more into April and beyond.

Credit selection has been key to this. The team say they derive most of the fund’s performance from investing into the right corporate bonds, based on strong credit research.   

ASIAN FIXED INCOME, LOCAL CURRENCY
Eastspring Investments
Asian Fixed Income (Asian Local Bonds) Fund

Investing into local currency bonds is an increasingly complex process in Asia, as markets continue to rapidly expand. However, Eastspring has done a sterling job with its local currency bonds-focused fund.

The fund has particularly focused its investment efforts on corporate bonds, given their yield pickup over respective government bonds. It’s proven to be an effective strategy, with the fund reporting returns of 10.23% during the 12 months to December 20, 2020, in addition to offering annualized three-year returns of 6.56% and 7.02% over five-years.

Lead portfolio manager and head of fixed income Guan Yi Low, now a 14-year veteran of Eastspring who has overseen the fund ever since joining, can take much of the plaudits for its performance. She works with a team of 20 executives that cover regional fixed income, boasting a local market presence across multiple Asian markets. That local presence has also helped the fund to build exposure to local corporate bond issues, an area often held close by local investors.

This local knowledge also helped during the market volatility of 2020, with the fund adding exposure to credits it was confident would best weather the crisis, which it combined with an overweight on duration. That proved to be an astute move, as interest rates sharply declined.   

CHINESE DOMESTIC FIXED INCOME
HSBC Asset Management
Global Investment Funds – RMB Fixed Income

The bond market of China is quickly picking up the interest of investors across the globe, as its economy continues to grow, more borrowers come to the fore and – crucially – the avenues for investment keep liberalizing.

HSBC has long been a bank with strong ties to China, and it has utilized the breadth and depth of its knowledge to make some astute investment decisions into the country’s fast-expanding bond market. That has enabled it to offer some decent returns over the past several years, with the fund offering annualized returns of 5.56% over five years, and 5.54% over three. However, it was during 2020 that the fund’s fund management team really came into their own, boasting a return of 12.37% over the year to December 20, 2020.

In part this impressive return was down to the dynamics of the broader market – after a painful first quarter, as the Covid-19 pandemic spread from China and closed down much of its economy the country came roaring back and boasted a positive GDP across the course of last year. But HSBC’s team were also astute bond pickers, focusing on borrowers with strong fundamentals that could weather difficult conditions and then capitalise on an economic rebound.

With Chinese bonds being included into more global benchmark indexes, foreign investor inflows into renminbi bonds only look set to keep rising. And with its lusty performance last year, HSBC’s renminbi fixed income fund is very well placed to benefit.