Sell-off
Going into the sell-off the fund was cautiously positioned. The managers increased exposure to sovereign debt and adopted a short position on corporate bonds as corporate bond prices appeared to take no account of the looming coronavirus-linked recession.
As the sell-off unfolded, the spike in credit yields and the huge amount of central bank stimulus saw valuations go from overpriced to very cheap in a matter of days and offered the opportunity to offload some of their government debt to take advantage of the ultra-cheap valuations on offer in the secondary markets.
The fund has increased its credit holding by taking part in the new debt issues from highly rated corporates on very attractive yields.
The fund has also seen a large inflow of money from investors, which the managers have used to buy new debt issues from lower rated investment grade companies where the managers feel confident the issuers will not see further downgrades.
In very volatile markets, such as those seen recently, you would expect strategic bond funds to outperform given their flexibility and ability to switch between sectors, duration and credit risk.
However, where strategic bond funds are merely replicating the performance of credit markets you may be better off sticking to a specialist corporate bond fund.
Charles Younes is research manager of FE
