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Guidance – Royal London Corporate Bond

Date:
Author:
The Adviser Centre Team
IA Sector:
£ Corporate Bond
Asset Manager:
Royal London

Following the news that Sajiv Vaid, lead manager of the Royal London Corporate Bond fund, is leaving Royal London Asset Management (RLAM) (see our Bulletin 27th April 2015), please find below a series of questions and answers which we hope will assist in your decisions on the next steps for existing and new investors.

Why has The Adviser Centre removed Royal London Corporate Bond from its Recommended list?

Following Sajiv Vaid’s departure, Jonathan Platt, Head of Fixed Income at RLAM, will take interim responsibility for the fund.  He previously managed the fund and has continued to be involved with the fund, in support of Mr Vaid.  While RLAM benefits from an established and well-resourced fixed income team, incorporating credit and sovereign specialists, the firm intends to add to its experienced team as a result of Mr Vaid’s departure.’

We believe that the RLAM fixed income team’s experience and its collegiate approach means that existing investors are in safe hands during this interim phase, but given our high thresholds for inclusion in our service, it is appropriate to remove the fund from our Recommended list.

Mr Vaid is joining Fidelity Worldwide Investment in July 2015 to be co-manager of the Fidelity MoneyBuilder Income and Fidelity Extra Income funds, alongside Ian Spreadbury. Fidelity MoneyBuilder Income currently features on our Recommended list.

What if my clients are to remain invested in the Royal London Corporate Bond fund?

As we indicate above, we do not believe there is cause for immediate concern following Mr Vaid’s departure.  We have known Mr Platt for many years, including the period during which he was the lead manager of the Royal London Corporate Bond fund, and there is no doubt that he and his team have the capability and experience to manage the fund according to existing investors’ expectations and the long-standing investment approach.

Nonetheless, Mr Vaid had worked at RLAM since 2001 and his expertise will undoubtedly be missed in this collegiate working environment.  That said, the fact that the fund is managed according to a team-based approach makes Mr Vaid’s departure less troublesome than it might otherwise have been.

In the meantime, we will have to wait and see who RLAM hires and refresh our assessments thereafter.

As a reminder, the approach that underpins Royal London Corporate Bond is credit-intensive, with the team seeking to add additional value by investing in unrated and/or more complex securities upon which they conduct deep, in-house research.  Relative duration positioning is a less important source of performance but the fund can be positioned in a range of +/- 2 years compared to the benchmark.  The team’s approach has been successful over the long term, although the less liquid holdings in the portfolio can generate elevated price volatility during more challenged credit markets.

Do you have any suggestions for alternative funds?

Royal London Corporate Bond has differentiated features, notably the team’s willingness to invest in unrated and more esoteric securities and this sets it apart from most others in the sector.  Nonetheless, in terms of the overall profile of the fund, it has common characteristics with other funds that we feature within The Adviser Centre.

Within The Adviser Centre, we divide our featured funds from the IA £ Corporate Bond sector into three categories – ‘Constrained’, ‘Moderately Flexible’ and ‘Very Flexible’. Royal London Corporate Bond was in the ‘Moderately Flexible’ category. Please see our IA Sector Overview document for the IA £ Corporate Bond sector for more details.

Fidelity MoneyBuilder Income

Given that Mr Vaid is joining Fidelity to be co-manager of Fidelity MoneyBuilder Income, alongside Ian Spreadbury, this fund may be under consideration.  Please click here for our latest factsheet.

  • The fund features in our ‘Constrained’ category.
  • Like Royal London Corporate Bond, the investment approach is credit research-led.
  • Also similar is that relative duration positioning is not an important source of return; indeed, duration is even less relevant for the Fidelity fund, which has a typical range of +/- 1% relative to the benchmark.
  • The Fidelity fund is materially larger than the Royal London fund and is much more diversified at the security level.
  • Overall, the Fidelity fund is more mainstream in nature than the Royal London fund and is typically expected to generate a risk and return profile that is closer to the index.

BlackRock Corporate Bond

Like the Royal London fund, BlackRock Corporate Bond also features in our ‘Moderately Flexible’ category. Please click here for our latest factsheet.

  • There is sufficient flexibility in the mandate to allow the managers, Simon Bundell and Ben Edwards, to express their views with conviction, but within a clearly articulated framework.
  • Like the Royal London fund, relative duration positioning is within the range of +/- 2 years of the benchmark.
  • In line with IA sector rules, they are permitted to hold up to 20% in sub-investment grade bonds.
  • The fund is relatively small in size, at just shy of £400m as at 31st March 2015.
  • The BlackRock fund incorporates a greater degree of top-down input than the Royal London fund, but credit research is still the key input and is covered by a large analyst team.
  • Overall, the BlackRock fund is a more dynamically managed proposition, with the managers free to express tactical as well as strategic views.

M&G Strategic Corporate Bond is the final fund in the ‘Moderately Flexible’ category, although this fund features on our Established list given its large size.

Our ‘Very Flexible’ category features Invesco Perpetual Corporate BondKames Investment Grade Bond and Old Mutual Corporate Bond.  All three funds are typically managed with high conviction, albeit using different approaches, and we would deem them less appropriate alternatives to Royal London Corporate Bond.

As reminder, for your convenience, asset managers’ own fund factsheets can also be found within The Adviser Centre by searching for the relevant fund  in ‘Fund Search’ and clicking through to the fund details – look for ‘Adviser Factsheet’ at the top of the page.

 

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