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3 silver medal fixed income funds

Glenn Freeman  |  18 Jan 2018Text size  Decrease  Increase  |  
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To help ride out global credit market volatility, this trio of global bond funds have quite distinct characteristics but are highly regarded by Morningstar's manager research team.

A global aggregate bond fund focusing on developed markets, and which can hold both corporate and government bonds, PIMCO Global Bond (10883) takes a "flexible and diversified approach that deftly harnesses the firm’s significant analytical resources," says Tim Wong, associate director, manager research, Morningstar.

Wong highlights PIMCO’s "extensive global fixed-interest resources [that] allow coverage of a wide investment universe, with both top-down and bottom-up analyses playing key roles".

Its process involves combining medium- to long-term outlooks on macro issues of interest rates, economic growth and global trends, with a quarterly cyclical forum "that project shorter-term trends that assist PIMCO to identify sectors with the greatest risk/reward".

"Once major macro themes are in place, sector specialists conduct rigorous credit analysis to identify the best ideas to implement," Wong says.

In Morningstar's backward-looking measurement of rating and risk, it holds five-stars, with 3-year, 5-year and 10-year returns of 4.9 per cent, 5.35 per cent and 7.89 per cent--though past performance is no guarantee of future returns.

"PIMCO's not perfect, but it is very good…the firm continues to benefit from a standout investment culture," Wong says.

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In terms of pricing, it's 0.49 per cent per year is in line with peer group average. Though Wong says "we have historically taken the firm to task for failing to pass along economies of scale in pricing, but its overall expense profile is reasonable".

"That said, PIMCO has never closed a fund to new investors," he says.

A purely sovereign bond-focused fund, the appeal of Colchester Global Government Bond (40930) is its "simplicity and its use of time-tested economic theories such as prospective real yield and purchasing power parity, which tend to hold true over the medium to long term," says Alex Prineas, Morningstar's associate director of passive strategies.

"A distinctive element is the focus on sovereign (primarily local currency) bond and currency markets. Within that, the team screens countries on their ability to repay debt.

"This leads to investments primarily in countries rated investment-grade, with the flexibility to hold up to 20 per cent in sub-investment-grade bonds," Prineas says.

Despite a 10 per cent fee cut at the end of 2016, Prineas says its fees are above average, "but the highly experienced team has effectively applied economic theories to generate strong returns over time, making this a solid long-term offering".

Morningstar's analyst rating for the fund was upgraded to silver from bronze in the first-quarter of 2017.

Within unconstrained space, "Legg Mason Brandywine Global Opportunistic Fixed Income (16192) is an excellent choice for benchmark-unaware global bonds," says Morningstar manger research analyst Andrew Miles.

He explains it as "a portfolio that stands out from its peers", pointing particularly to its employment of "macroeconomic and valuation analysis to identify countries with attractive real yields, find advantageous spots along markets' maturity spectra, and pinpoint undervalued currencies".

With a Morningstar four-star rating, it delivered historical 3-year and 5-year returns of 3.48 per cent and 5.69 per cent, respectively.

According to Miles, the fund's indirect cost ratio of 0.7 per cent for it’s A-share class--where 75 per cent of its assets reside--"is an expensive fee for a global-bond fund, but Brandywine has a lot more flexibility than the average".

"We'd prefer it if the price was lower, but at least that ability leaves scope to overcome the fee headwind."

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Glenn Freeman is Morningstar's senior editor.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

is senior editor for Morningstar Australia

© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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