Liontrust Assessment of Value Report - Flipbook - Page 100
Liontrust Strategic Bond Fund
The Fund has been managed by David Roberts and Phil Milburn,
with Donald Phillips as assistant manager, since launch in May
2018. The aim of the Fund is to maximise its total return over
the long term (5 years or more) through a combination of income
and capital growth by investing in government bond and credit
securities globally. The Fund may invest up to 40% of its net assets
in emerging markets. The fund managers seek to take advantage
of market inefficiencies through understanding the economic
environment, bottom up stock analysis and flexibility over duration,
credit, sector and geographical allocations. The managers only
commit cash to the market when they believe investors will receive
a return that justifies the risk they are taking.
Performance
Overall value
assessment
We have assessed the investment performance of the Fund against both its
stated investment objective, as well as against the benchmarks that are set out
in its prospectus. We considered whether the Fund has performed how we and
investors would expect it to, given the market conditions it has been operating
under, and its investment philosophy, strategy and process.
We have evaluated the Fund
against all seven criteria in
our assessment of the value
it provides to investors. We
have concluded that the
Fund has performed in line
with expectations, delivering
overall value to investors.
The Fund launched less than five years ago, so has been assessed on an
interim basis against the performance since launch. The fund has met its yield
targets and produced capital growth since inception but has underperformed
versus the sector. The UK sector for strategic bond funds has a wide range of
funds including a number of funds with more aggressive risk appetites. The fund
has always explicitly targeted the risk appetite of European and institutional
managers which is lower than that of the sector and therefore the fund will
always struggle to compete with those funds taking more risk however the
investment adviser still believes the sector remains the most appropriate one for
comparison for clients.
Go back to the Summary
of the Assessment of
Value table
The fund managers have generated a solid positive return for the Fund since
launch and found the levels of risk necessary to target substantially higher returns
to be unacceptable. Since launch in May 2018, the Fund has returned 14.8%
while the average return in the IA Sterling Strategic Bond sector, the Fund’s
comparator benchmark, was 16.5%.*
Given the fund’s low beta, value-driven stance, the fund managers believe
that investment performance has been very robust. While they have avoided
exposing the Fund to beta risk – a bet on market direction – which they view
as deeply unattractive, the managers have still been able to pull other portfolio
positioning levers in order to generate positive returns. These include curve
positioning strategies, market-neutral cross-market trades and box trades.
Since Fund launch, the managers have viewed government bond markets as
incredibly expensive due to the artificial valuation support provided by central
bank actions – low rates and quantitative easing. This has been especially true
during the Covid-19 era. The fund managers have therefore restricted interest
rate risk, or beta, to less than half that of the global bond market.
The Fund has typically carried below 3 years’ duration, compared with the
investment team’s neutral position of 4.5 years and the Bloomberg Barclays
Global Aggregate Index average of more than 7.25 years. The aim has been
to maintain some correlation with bond markets but to remain very much in
capital preservation mode due to the concerning valuation backdrop.
As and when bond market valuations look more attractive, fund risk and beta
should be increased, all other things being equal.
This document is intended to be for information purposes only. It is not
marketing material.
*Source: Financial Express, as at 31.08.21, total return, net of fees, income reinvested.
100 - Liontrust Assessment of Value Report