First Quarter in Funds: Performance and Trends

Riskier areas fare better in Q1; we review all fund categories and key industry trends.

Morningstar Manager Analysts 8 April, 2009 | 9:07AM
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Bonds: High yield runs ahead
It appears demand for credit-risk has come back, at least to an extent. Whether looking at funds focussed on US dollar, Sterling, or Euro debt, high-yield funds (which focus on below-investment-grade credits) soundly beat all other bond categories in the first quarter. This stood in contrast to broad corporate bond funds, which were the worst performers across the board, dragged down in part by significant exposure to the financials sector. In the case of high-yield, it's worth noting that the default rates implied by yields at their peak were extraordinarily high, as much as 35% in some markets, which would by far eclipse the highest default rate on record. That suggests there was strong value to be had for intrepid investors, and may have inspired bottom fishing by investors, helping spreads to narrow.

Morningstar Category Q1 Returns

Morningstar Sterling Bond Fund Categories
Morningstar Category Total Ret 3 Mo (Qtr-End) GBP Total Ret 3 Mo (Qtr-End) EUR Total Ret 3 Mo (Qtr-End) USD Total Ret 3 Mo (Qtr-End) JPY
Sterling High Yield Bond
-1.31
3.01
-1.61
7.20
Sterling Government Bond
-1.72
2.58
-2.02
6.76
Sterling Global Bond
-2.11
2.17
-2.41
6.33
Sterling Diversified Bond
-3.00
1.24
-3.30
5.36
Sterling Corporate Bond
-5.48
-1.35
-5.77
2.67

Government bond funds also continued to do relatively well across the board. In terms of duration (a measure of a bond fund's sensitivity to interest-rate changes) short-duration funds continued to outpace their longer peers. This is to be expected in an environment where rates are easing: Bond prices move inversely to rates, so funds with less interest-rate sensitivity (shorter duration) fare better when rates are falling.

Morningstar Category Q1 Returns

Morningstar Dollar Bond Fund Categories
Morningstar Category Total Ret 3 Mo (Qtr-End) GBP Total Ret 3 Mo (Qtr-End) EUR Total Ret 3 Mo (Qtr-End) USD Total Ret 3 Mo (Qtr-End) JPY
Dollar High Yield Bond
2.95
7.45
2.63
11.83
Dollar Short Bond
0.93
5.34
0.62
9.63
Dollar Government Bond
-0.43
3.93
-0.73
8.16
Dollar Diversified Bond
-0.98
3.35
-1.28
7.56
Dollar Global Bond
-2.01
2.27
-2.31
6.44
Dollar Corporate Bond
-4.06
0.14
-4.35
4.22

Morningstar Category Q1 Returns
Morningstar Euro Bond Fund Categories
Morningstar Category Total Ret 3 Mo (Qtr-End) GBP Total Ret 3 Mo (Qtr-End) EUR Total Ret 3 Mo (Qtr-End) USD Total Ret 3 Mo (Qtr-End) JPY
Euro High Yield Bond
-0.63
3.72
-0.93
7.94
Euro Inflation Linked Bond
-3.32
0.91
-3.61
5.02
Euro Government Bond
-3.75
0.46
-4.04
4.55
Euro Short Bond
-3.77
0.44
-4.07
4.53
Euro Global Bond - Hedged
-4.08
0.12
-4.37
4.19
Euro Global Bond
-4.58
-0.41
-4.88
3.64
Euro Diversified Bond
-4.62
-0.44
-4.91
3.61
European Bond
-4.76
-0.60
-5.06
3.45
Euro Long Bond
-5.82
-1.70
-6.11
2.30
Euro Corporate Bond
-6.51
-2.42
-6.80
1.55

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Morningstar Manager Analysts

Morningstar Manager Analysts  research and rate hundreds of OEICs, unit trusts and investment trusts available for sale in the UK.