This sector gained an average of over 15% in US dollar terms during the year, only slightly underper...
This sector gained an average of over 15% in US dollar terms during the year, only slightly underperforming its counterparts in equity-based sectors investing into Europe. The top performing fund saw returns of 21.8%, and all except three funds had gains of at least 10% - overall, the range of returns of the 250 or so funds in the sector was fairly narrow. Though returns were robust for the sector, they were down compared to the year before when the sector gained an average of 24%.
The Standard & Poor's sector analysis on European fixed interest noted that in the second quarter of 2004 the portfolios of funds in this category were generally positioned defensively due to managers' concerns over the outlook for the market. One key concern was the impact of higher US interest rates on European bond markets, and many managers were consequently underweight duration. The report also points to the performance of corporate bonds during the period covered - improving economic growth in Europe and the US, positive corporate earnings and a strong demand for these bonds was positive for this asset class. This was in contrast to the report covering the quarter before (dated April 2004) when government bonds outperformed corporates due to lacklustre economic growth. Bond yields declined over this period - in the eurozone this was due to the strength of the euro and subdued inflation. The report also said that this led to hopes that the ECB might ease its monetary stance.
One of the best performing funds during the last year was the Fortis L Bond Long Euro fund, which gained 21% over the period, ranking it second in the sector. The fund has an A/S4 rating from Standard & Poor's, and five fund stars (indicating consistency of outperformance over three years). The opinion in the ratings report notes that the fund primarily focuses on long-dated European government bonds, typically those with over 10 years maturity, and aims to achieve a high risk-adjusted total return for investors. The emphasis is therefore placed on market timing, opportunistic duration and yield curve management. The fund's rated status is attributed to the disciplined investment approach, the well resourced team and the experience of the manager.
Another top-ranking rated fund in the sector is the Activest Lux EuroRent Flex fund, which invests in investment-grade, euro-denominated fixed income securities. The fund gained 17.7% during the year, with a similar level of volatility as the sector average. Though the named fund manager is responsible for the overall asset allocation of the fund, a team approach is also used to make investment decisions, and these are based on such factors as expectations for growth and inflation, structural factors, market sentiment and technical analysis. Risk is managed carefully, and all of these factors support the fund's single-A rating.
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation