Baillie Gifford' s Stephen Rodger talks to Joanna Faith about the strategy underpinning his Corporate Bond fund.
Can you describe your investment process?
We run a stock-picking fund and invest in a combination of investment grade and high yield bonds. We are attracted to bonds around the BBB/BB area.
We run three broad corporate bond funds at Baillie Gifford. Our Investment Grade Bond fund is a less risky proposition as it owns more highly-rated bonds. We also run a High Yield Bond fund. On the risk spectrum, the Corporate Bond fund sits somewhere in the middle. We describe it as the best ideas solution.
We look globally to source our ideas. We are happy to buy US, euro or Asian bonds and hedge them back if required. At the moment the breakdown by broad region is about 60% in the UK, 15% in Europe, 12% in emerging markets, 5% in developed Asia, 5% in the US and about 5% in supranationals, those organisations that straddle broad geographies.
Baillie Gifford's Stephen Rodgers on his attraction to bonds
Why do you favour BBB/BB bonds?
We think these bonds offer the best risk/return profile. You get a decent amount of yield but do not suffer many defaults.
Strategically if you want to be invested in the credit markets for a long period of time, say five or ten years, this is where you want to be invested.
We run the fund against an internal benchmark which is 70% in investment grade and 30% in high yield. We have the scope to move about more if we want but the portfolio split remains mostly unchanged.
Which positions have performed particularly well for the fund over the past five years?
Old Mutual is one holding that has performed well for us. As active stockpickers, we will own up to 5% in an individual company’s bonds. This makes us different from other investors out there.
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