M&G Strategic Corporate Bond fund page

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M&G Strategic Corporate Bond

IA Sector:

£ Corporate Bond

Asset Manager:

M&G

Asset Manager Website:

www.mandg.co.uk

Asset Manager Factsheet:

A flexibly managed investment grade bond fund. The approach combines macro-economic analysis with proprietary credit research. Within its sector, the fund features in our ‘Dynamic’ category.

Opinion, Characteristics & Utility

Opinion

This Recommended fund is managed by experienced fixed income practitioners. Both managers are members of M&G’s Wholesale Fixed Income team and can draw upon the considerable expertise of the wider department.
The managers are not afraid to express robust economic and market views through their funds, moderated according to the underlying mandates and investor base.
M&G’s extensive risk teams and portfolio systems helps the managers pinpoint risks in the fund and monitor liquidity.

Characteristics & Utility

This is a diversified fund which is managed in a risk-aware manner. In keeping with this, the managers aim to deliver attractive risk-adjusted returns, whilst also retaining the basic characteristics of the investment grade corporate bond asset class.
Nevertheless, the managers are willing to reflect robust macro-economic views through the portfolio’s aggregate credit risk and duration exposures. Indeed, the fund’s broad guidelines facilitate this approach. This means that there is scope for variability in relative returns when higher conviction views are being deployed, although position sizes are scaled with an awareness of downside risk.
The fund can be used at the heart of a corporate bond blend, although it operates with more flexibility than its sister fund, M&G Corporate Bond. Investors should have some tolerance with regard to relative returns, notably when the managers’ long-term views are out-of-step with that of the market.

Risk Commentary

The fund’s KIID Synthetic Risk and Reward Indicator (SRRI) is 4. This is a regulatory measurement that is, where possible, calculated from the volatility of its weekly performance over a five-year period. A score of 4 means the fund’s historic volatility is between 5% and 10%.

The fund’s five-year standard deviation is marginally higher than mainstream corporate bond indices. We would expect the reasonably diversified nature of the fund to lead to a volatility outcome in keeping with the asset class over most five-year periods. Different share classes could have differing SRRI scores.

Description

Investment Team

The fund is co-managed by Richard Woolnough and Ben Lord. Mr Woolnough began his career in 1985 and joined M&G in 2004. He manages the firm’s three flagship fixed interest funds. Mr Lord joined M&G in 2007 and was deputy manager of this fund before becoming co-manager in January 2020. He also manages other funds in the fixed interest range. They benefit from the experience of M&G’s well-resourced Wholesale Fixed Income team.

Investment Philosophy

The managers believe that corporate bond fund returns are driven by a combination of credit and interest rate risk and that, by analysing the variables influencing both these factors and emphasising different variables in different market conditions, they can deliver attractive performance. They further believe it is important to recognise the asymmetry of potential return from bonds and consequently uses credit analysis to avoid weak issuers.

Portfolio Construction & Risk Controls

This fund is part of a suite of funds covering the fixed income opportunity set. Its sister fund, M&G Corporate Bond, is a long-established fund that has a conservative mandate. This fund was launched later and has a more flexible mandate, allowing the managers to express their views with greater conviction. It invests at least 80% in investment grade corporate bonds and may hold up to 20% in high yield bonds or government bonds. Duration is managed within a 3.5 to 9.5-year range but is rarely more than 3 years away from corporate bond indices. Derivatives can be used for investment purposes, efficient portfolio management and hedging.

Investment Process

The managers’ macro-economic analysis is an important part of the process, in setting the fund’s interest rate sensitivity (duration), yield curve and credit quality strategies. Their fundamental analysis of global growth indicators, inflation statistics and other macro-economic variables generate forward-looking expectations that inform interest rate forecasts and portfolio positioning. This research also generates preferences for different parts of the fixed income market.

The selection of individual bonds for the portfolio is dependent upon the credit analyst team’s rigorous issuer analysis. This internal credit rating and monitoring process incorporates industry research, company balance sheet analysis and stress-testing, together with an understanding of the liquidity and covenants pertinent to individual bonds. The approach often includes company meetings. The analysts are also responsible for regular, comprehensive sector reviews to support their relative value recommendations.

Key Fund Facts

Inception Date:

20 February 2004

Manager(s) (Since):

Richard Woolnough (Feb 04)

Ben Lord (Jan 20)

Fund Domicile:

United Kingdom

Base Currency:

£ Sterling

Fund Benchmark:

iBoxx Sterling Corporate GBP

IA Sector:

£ Corporate Bond

Formal documentation, including the fund prospectus and the KIID, should be sought directly from the asset manager. For ease of reference, a link to the ASSET MANAGER WEBSITE can be found above, as well as a link to the ASSET MANAGER FACTSHEET.