The 2nd anniversary of Tideway fixed income funds - How are we doing?

Tuesday 4 September 2018

Tideway UCITS Funds GBP Credit Fund and GBP Hybrid Capital Fund are part of the IA Sterling Strategic Bond sector. The second anniversary since launch of these two Tideway funds provides a good opportunity to look at performance in absolute terms and versus the peer group.

FE Analytics* provides a lot data on the IA Sterling Strategic Bond Sector, which has £125bn AUM across 89 Funds. Over £70bn of that sector AUM is in the two largest funds - PIMCO Global Income Strategies (£50bn) and M&G Optimal Income (£23bn). So, there is something like £50bn split across the remaining 87 funds which in turn all have very different sizes.

Performance wise, Tideway GBP Hybrid Capital Fund ranks 2nd and the Tideway GBP Credit Fund ranks 15th out of the 82 funds with a 2-year performance record.

Other managers with two funds in the top twenty are PIMCO, Artemis and Royal London meaning there are four such managers out of the fifty-five companies managing funds in the sector. Note that Royal London has six funds in the sector totalling £3bn AUM, PIMCO has four with £57bn AUM and Artemis has two with £2.65bn AUM.

Leaders

The list below of twenty-four “good performers” has a cut off of “Performance over 5.5%” because that is roughly the return needed to beat the combination of UK CPI inflation and typical Wealth Management / Platform fees over the period. Below this level of fund return, investors have lost money in real terms. Excluding the two largest funds of £73bn, the group AUM here is about £18bn.

*All figures FE Analytics: NAV Values Sept 1st, 2016 – August 31st, 2018

Laggards

Laggards come in various shapes and sizes. Disappointment is most acute when a large asset management firm with plenty of resources is running sensibly-sized, reasonably-priced funds which do not deliver defensible returns. Whilst QE and low interest rates have lowered yields, the bond market background has been very stable and credit positive, so you have to ask what these managers have been doing over the past two years to underperform like this.

*All figures FE Analytics: NAV Values Sept 1st, 2016 – August 31st, 2018

Taking into account inflation and fees of 5.5%, being invested in the above thirty-three funds over the past two years has meant a loss in real terms of between -3.8% and -9.4% on more than £13bn.

Between these two groups of “Leaders and Laggards” comprising fifty-seven funds, there are twenty-five funds comprising £20bn AUM with modest “nominal positive / real negative” performance from leading UK fund managers such as Aviva, Janus Henderson, Kames, Hermes, Fidelity, MAN Group.

Conclusion

Funds within the IA Sterling Strategic Bond sector employ many different strategies across the bond markets and with widely varying results.

With so much choice there is no real need to stick with a poorly performing fund unless the manager can provide a clear explanation of how the future is likely to be different.

Low current yields, the unwind of QE and modestly higher future interest rates mean that bond managers need to have a clear and credible strategy to deliver positive real returns net of fees over the next two years.

Peter Doherty
Managing Partner and CIO, Tideway Investment Partners

**Important Information
This information is for information and discussion purposes only and should not be construed as personal advice to invest in the Tideway UCITS Funds ICAV nor any of the securities mentioned. Always read the prospectus, factsheets and KIIDs before investing in any fund.
Investing in Tideway UCITS Funds ICAV involves the risk of loss and there is no guarantee that all or any capital invested will be repaid.  Past performance is no guarantee of future returns and the value of investments and the income they produce can fall as well as rise.
Investors should make their own investment decisions based upon their own financial objectives and financial resources and, if in any doubt, should seek advice from an investment advisor.

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