Three of the largest UK domiciled bond funds have lost more than £500m between September and October as more investors continue to ditch the asset class.
The £15.5bn M&G Optimal Income, the £4.6bn M&G Corporate Bond and £4.1bn Strategic Corporate Bond funds have lost £147m, £222m, and £143m respectively over a month’s period, according to Morningstar estimates.
The same funds have seen outflows of £7.2bn, £517m and £777m over a one-year period.
However, the M&G European Corporate bond saw £2m inflows over the month after losing £344m over the past year.
Morningstar associate director of fixed income strategies Ashis Dash says: “The M&G Corporate Bond and M&G Strategic Corporate Bond funds are two of the largest funds within the GBP Corporate Bond Morningstar Category and their relative performance against category peers has not been the best over the last few years.”
Dash says as with M&G Optimal Income, the underweight duration position for the Corporate Bond Strategic Corporate Bond funds has been a detractor of performance.
He says: “A cautious stance in banks led to the fund modestly lagging peers in 2012-13, while its underweight duration stance has been a chief source of underperformance since 2014 as core government-bond yields have broadly drifted lower, offsetting modest contributions from security selection within corporate bonds. I believe the relative underperformance may have been the reason behind some of the outflows along with some of the macro reasons such as QE and the possibility of an interest rate rise in the US and volatility in commodity prices.”
Meanwhile, Chelsea Financial Services managing director Darius McDermott says one reason for the outflows is to attribute to European investors which “tend to be more short-term investors”.
However, he says:”These M&G funds are all big funds but I don’t think this is a huge issue. It’s been a difficult year for the asset management industry especially if you are big in the fixed income asset class. More people are now underweight fixed income, so this is more of a technical issue, not an M&G issue.”
M&G declined to comment on the outflows figures.
Unsurprisingly, not only M&G has been hit from significant outflows in recent months. The £5.3bn Invesco Perpetual Corporate Bond fund, the largest corporate bond fund in the UK, saw outflows of £488m over a year period, and almost £90m over just a month’s period. Similarly, the £2.1bn Scottish Widows HIFML Corporate bond lost £242m and £11m over a year and a month period respectively.
The analysis on flows comes as M&G’s fixed income team said today in a blog that a global inflation shock could cause “carnage” in bond markets following the rise in debt prices and more sensitivity in funds to interest rate moves.
In September, Richard Woolnough also warned cash is a better investment than debt following the extraordinary impact that central bank policies are having on returns for the asset class.