Glendevon King Asset Management (GKAM), the independent fixed income boutique, has revealed that its MFM Glendevon King Global Bond Fund (The Fund) has outperformed the majority of its peers thanks to its contrarian strategy of sourcing and investing in niche pockets of undervalued bonds.
The Funds Class B Acc has returned 7.9% and the Funds Class A Acc has returned 7.4% over one year (as at 3rd May 2011), 4.6% and 4.1% above the IMA Global Bonds Sector average of 3.3% respectively, according to investment analytics firm Trustnet.
Our strategy is to buy at discounted levels, whilst ensuring that the coupon price is relatively high, says Peter Baum, Fund Manager at GKAM. This enables us to access the underlying value in the holding and creates embedded value, validating our position that fixed income bonds can still create value in a rising inflation and interest rate environment. Furthermore, there is a genre of bond issues available which offer not only high annual coupons (anywhere between 5% and 8%) but also provide exceptional discounts to par thus substantially increasing the yield. Moreover, we have sourced liquid market opportunities within the Eurozone which have given us value.
The performance of the Fund has defied the commonly held view that in an environment of rising interest rates coupled with rising inflation, the capital value of bonds will eventually decrease, effecting fund performance.
The Fund demonstrates that the key to achieving capital gains in all market conditions lies within the Funds investment strategy of sourcing pockets of undervalued strategies or undervalued individual bonds in the marketplace.
Amongst the niche opportunities present across the market, Baum is also of the view that bonds issued by UK and European Financial Institutions banks and insurance companies, offer good value.
Such institutions survived the 2008/2009 crisis and have been strengthening their balance sheets since then. However, it has taken them a long while to recover relative value, adds Baum. Putting this strategy into play some six months ago has driven the Funds net asset value enabling it to outperform and it is my belief that the strategy still has room for growth and therefore I am adding to positions selectively.
(LB)