Bond Turmoil Shakes Up Fund Tables

The turbulence in the bond and equity markets has upset the usual order among top and bottom performing funds rated by Morningstar, with tech and China out of favour

James Gard 1 March, 2021 | 10:58AM
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A sharp sell-off in equities and bonds towards the end of February has shaken up the usual order of among Morningstar’s highly rated funds. Previous top performers such as China and US tech funds found themselves in the bottom 10 of performers for the month, while US smaller companies, Japan and UK value funds were pushed to the top of the leaderboard. UK Government bond funds were also among the laggards after a surge in yields.

This spike in bond yields suggests that market expectations for inflation, interest rates and economic growth have been revised sharply higher. With bond prices slumping in February, it’s no surprise to see these funds heavily represented in the bottom 10. Some of these funds received strong inflows in 2020 amid the “flight to safety” triggered by the pandemic. Four out of the bottom 10 performers were bond funds and they are focused on UK Government debt: Allianz Gilt Yield lost 6.3%, Vanguard UK Government Bond Index fell 6.2%, while iShares UK Gilts All Stocks Index and iShares Index Linked Gilt Index were down 5.8% each. Many of the bond funds in the bottom 20 are index-linked funds, which are most sensitive to changes in inflation expectations (they are products designed to protect investors from rising interest rates).

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James Gard  is content editor for