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5 Top Rated Bond Funds

Global bond exposure provides a counter to equity market volatility in a well diversified ISA portfolio - and certain funds can deliver exceptional income too

Emma Wall 9 April, 2014 | 11:01AM

Investors have been warned not to over-concentrate their fixed income exposure. The UK bond market only makes up about 6% of available bonds worldwide, but when it comes to fund selection the British tend towards better-the-devil-you-know investing.

“Many UK investors still prefer to ‘buy local’ and invest in names that they recognise. Home bias can lead to concentrated portfolios. By diversifying globally investors can reduce the idiosyncratic risk of any particular market or company,” advised Peter Westaway head of Investment Strategy for Vanguard Asset Management.

“Ten years plus bond maturities make up roughly 45% of the UK market but only 20% of the global market. This implies more interest rate risk compared to global bonds from higher duration. Global bonds can help diversify interest rate risk.”

For investors looking to add to their bond exposure, we reveal five highly rated funds which offer global diversity within the asset class. Investors should note that global bond investment is sensitive to fluctuations in the currency market.

Templeton Global Bond

This Morningstar analyst Silver Rated fund is an attractive choice for investors who understand its risks. Analysts like the long track record of manager Michael Hasenstab, who has been at the helm for more than a decade. The established investment process is robust, being driven by valuation and fundamentals. Hasenstab invests in areas he believes are undervalued given the team’s global macroeconomic analysis and detailed country-level expectations.

BlackRock Overseas Corporate Bond Tracker

This Bronze Rated fund is a passive investment for investors seeking exposure to the market of investment-grade corporate bonds issued by developed economies. Financials are the largest sector exposure, while the US is the largest country exposure. The fund is denominated in GBP.

Invesco Perpetual Global Bond

This Bronze Rated fund is a good option for investors seeking exposure to global government bonds and currencies, with opportunistic exposure to credit, say Morningstar analysts. The fund provides exposure to global sovereign and corporate bonds, although the default is to be invested in sovereign bonds.

JP Morgan Global Aggregate Bond

Morningstar analysts say this Bronze Rated fund is a strong choice for investors seeking unhedged exposure to global investment grade bonds. This is a benchmark-aware fund designed to offer a risk profile that measures up with that of the Barclays Global Aggregate benchmark while affording the managers sufficient flexibility to add value over the longer term

Legg Mason BW Global Fixed Income

Morningstar analysts have high conviction in Global Fixed Income’s potential to deliver long-term outperformance to investors. The Bronze Rated fund has a stable and experienced investment team that use their macroeconomic analysis to build a high-conviction portfolio.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Invesco Global Bond UK Acc145.52 GBP-0.51
iShares Overseas Corp Bd Idx (UK) A Acc166.51 GBP-0.83
JPM Global Aggregate Bond A (acc) USD13.53 USD-0.48
Legg Mason BW Glb FI A USD Acc149.16 USD0.05
Templeton Global Bond A(acc)USD29.51 USD-0.72

About Author

Emma Wall  is former Senior International Editor for Morningstar

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