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Mike Riddell leaves M&G's bond fund team

Top 100 Funds update: While his departure from M&G Global Goverment Bond is not a problem there is better value in strategic bond funds.

Mike Riddell, manager of IC Top 100 Fund M&G Global Government Bond (GB00B7J76C49) since 2010, is leaving after working at M&G for 12 years. Mr Riddell is joining another large bond fund manager, but has not said which firm.

M&G Global Government Bond Fund is now run by Claudia Calich, and Jim Leaviss, head of retail fixed interest at M&G, continues to be deputy manager. There will not be any changes to the way the fund is run and M&G says it is managed very much via a team approach, although Ms Calich was not directly involved with it before.

Ms Calich is also manager of M&G Emerging Markets Bond Fund (GB00B4TL2D89), and has been appointed deputy manager of M&G Global Macro Bond Fund (GB00B78PH601), on which Mr Riddell was deputy manager. Before joining M&G in 2013 she was a senior portfolio manager at Invesco in New York, and has more than 20 years experience in emerging markets.

Mr Riddell was also manager of the M&G Index Linked Bond (GB00B7875289) and M&G Gilt & Fixed Interest Income (GB00B7454D07) funds.

Juliet Schooling Latter, research director at Chelsea Financial Services, does not think the departure is a problem for the wider team at M&G as it is large and capable.

 

Poor performance prospects

M&G Global Government Bond Fund has made negative returns over three and six months, but fared better over one and three years. Ms Schooling Latter warns that even if this fund outperforms its benchmark and similar funds it might still make negative returns at this point in the cycle due to its focus on government bonds.

"Government bond funds have had a good run over the past few years and don't offer that much value," adds Mark Dampier, head of research at Hargreaves Lansdown. "We are not that bearish on bonds as I don't think interest rates will rise that much, but global bond funds tend to rely on currency, which has helped recent returns, and most people get that hopelessly wrong."

He says investors should also consider how M&G Global Government Bond Fund fits with the rest of their portfolios, and make sure the holdings aren't all driven by the same factors.

 

Better bond fund options

Ms Schooling Latter thinks that the best options among bond funds are strategic bond funds. "These can react to the market as they have the ability to shift between different areas of the bond market, and can attempt to protect the portfolio in times of difficulty," she says. "Government bonds have had a torrid time recently so it is difficult to recommend a fund focused on these in the current environment."

While he wouldn't sell the fund because of Mr Riddell's departure, as M&G's bond team is large with many experienced people, Mr Dampier also thinks strategic bond funds are better because their managers have a wide range of investment options, although the returns rely on the managers getting the allocation right.

Ms Schooling Latter and Mr Dampier both recommend Jupiter Strategic Bond (GB00B2RBCS16) which we count among our IC Top 100 Funds.

Ms Schooling Latter also suggests PFS TwentyFour Dynamic Bond Fund (GB00B57TXN82) which can invest in a wide range of fixed-income assets including investment-grade bonds, high-yield bonds, government bonds and asset-backed securities. It has research company FundCalibre's highest 'Elite' rating.

The fund can take advantage of changes in market conditions and its managers' main focus is on how likely interest and capital payments will be made on time, to protect capital. Fluctuations in interest rates are normally hedged away. FundCalibre adds that PFS TwentyFour Dynamic Bond differs from many strategic bond funds due to a consistent weighting to asset-backed securities, an area in which its managers specialise.

Mr Dampier suggests Royal London Sterling Extra Yield Bond Fund (IE00BJBQC361), which offers a 12-month yield of 7.64 per cent, typically higher than government bond yields.

"This is a very attractive return when interest rates are low, especially if held in an individual savings account (Isa) or self-invested personal pension (Sipp)," he says. "The fund has an experienced manager, Eric Holt, and is not as risky as you might think: if the economy doesn't deteriorate much then high-yield should be all right. High-yield bonds tend to perform better when economic growth is stronger.

"But we still consider this to be at the higher-risk end of bond portfolios, so this fund could be considered by investors looking for a higher level of income, but who are willing to tolerate potentially higher volatility in search of superior long-term returns."

 

Fund performance

 1-year total return (%)3-year cumulative total return (%)5-year cumulative total return (%)10-year cumulative total return (%)
M&G Global Government Bond A Inc3.3-11.66.858.2
Barclays Global Treasury TR USD-0.6-8.31.852.5
IA Global Bond sector average-0.31.611.450.5
Jupiter Strategic Bond Acc1.518.341.5
Markit iBoxx GBP NonGilts TR6.117.439.667.4
Royal London Sterl Extra Yld Bd Y2.5
FTSE Gilts Over 15 Yr TR GBP13.714.056.293.9
IA £ Strategic Bond sector average2.715.832.551.0

Source: Morningstar as at 23 July