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Bond funds have largely been ignored by investors in recent years. However, during the recent market volatility bond prices have fallen but yields have risen. Investors buying these funds can now benefit from high income levels and, if prices rise,
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Investment values can go down in value as well as up and you may get back less than the amount you invest.
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The fixed interest market is varied. Bonds come in all shapes and sizes and the level of risk varies. There are higher rated, lower yield (investment grade) bonds; or lower rated, higher yield (junk) bonds. Each has a different length of time until maturity. Different bonds perform depending on market conditions. Choosing where to invest, and when, can be difficult. Some funds are restricted to investing in just one area of the market.
The Henderson Strategic Bond Fund adopts a flexible approach. The managers, John Pattullo and Jenna Barnard, invest across a range of bonds, and wherever they see opportunities. They are not tied to any benchmark, nor are they required to generate a specific level of income.
As a result the level of income is likely to fluctuate. The focus of this fund is on generating a ‘total return’ (capital growth and income) not only to provide a yield. The managers can also potentially enhance returns by ‘going short’. They will attempt to profit from areas of the market they believe will fall in value as well as looking for bonds to rise. However, this fund is not a one way bet and so investors should appreciate that the value can fall as well as rise and this fund is more risky than funds confined to gilts or investment grade bonds.
Currently about 20% of the fund is in cash. Although the managers are seeing some compelling valuations they expect the current volatility to continue and for some prices to be pushed down further, especially in the financial sector. They are selectively investing this cash in the market. Clearly it is impossible to know when the market has hit the bottom but by investing at intervals the price they pay will be averaged.
With interest rates expected to fall from their current levels bond prices could rise. This gives investors the opportunity for capital growth as well as participating in the fund’s current high yield. We welcome the Henderson Strategic Bond Fund into the Wealth 150, a list of our favourite funds in each sector.
» Key Features of the Henderson Strategic Bond Fund
Fund research is provided by Hargreaves Lansdown. Hargreaves Lansdown is an independent broker offering unit trust, stockbroking and other pension and investment services. No news or research item is a personal recommendation to deal.