Fund Spotlight: consistent performer yielding over 6%

In 2025, the safe-haven status and reasonable yields of cash deposits and money market funds have remained popular with investors. However, with the prospect of trade restriction and the need to address mounting US debt threatening US and global growth, the US Federal Reserve’s interest rate cutting cycle may not remain on hold for long, while the UK and Europe have continued cutting throughout the first half of this year.

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As the pressure for further interest rate cuts this year mounts, higher-yielding bonds could offer an attractive income for investors and complement a portfolio which already holds a sufficient allocation to money market funds and investment-grade bond exposure. For a broad actively managed fixed-income exposure including high-yield bonds, the Royal London Global Bond Opportunities fund stands out as a consistent performer and constituent of the ii Super 60.

The fund is managed by the experienced duo of Rachid Semaoune and Eric Holt, who bring decades of experience in credit and fixed-income markets and are supported by the credit team and by the firm’s broader fixed-income and credit research capabilities. The objective of the fund is to achieve a high level of income with the opportunity for capital growth and it is not managed against a formal benchmark.

What does the fund invest in?

The fund employs a flexible, unconstrained approach. It can invest across a broad spectrum of global fixed income, encompassing investment grade (those deemed “high quality”), sub-investment grade and unrated bonds, which helps to mitigate risk while providing considerable opportunities. The combined exposure to high yield and unrated bonds is considerable, sitting at just over 60%, with the remainder allocated to investment-grade exposure with over a third of the fund in BBB rated securities.

Credit ratings – Moody’s, Standard & Poor’s and Fitch – assign ratings to bonds. A bit like grading homework, AAA is given for the “highest quality” bonds, while ‘BB’ to ‘D’ are assigned to riskier high-yield bonds. 

The managers use their extensive experience of researching and investing in a broader credit universe, enabling them to source bonds with strong covenants that are usually secured i.e. backed by a charge on specific assets. This approach provides higher-yielding opportunities without taking the elevated degree of risk which is generally associated with high-yield funds. This focus on the under-researched parts of the market is common among the Royal London fixed-income strategies.

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The fund is highly diversified with over 300 holdings, containing securities denominated across a range of G10 currencies, with currency exposures substantially hedged back to sterling. The average duration (sensitivity to changes in interest rates) of the fund’s portfolio is relatively short at just over four years. The fund’s exposure to both developed and emerging markets provides flexibility to capture opportunities across different economic environments.

At a sector level, the portfolio has become relatively concentrated in the financial sector. Banks and financial services are the largest position accounting for 28% of the portfolio, with household names including Lloyds Banking Group (LSE:LLOY), Barclays (LSE:BARC) and Standard Chartered (LSE:STAN) all featuring in the list of the top 10 holdings. The allocation to Insurance issuers is also significant at 17%. Since the 2008 financial crisis, banks and insurers have significantly improved their capital positions and offer attractive coupons to investors with relatively stable credit ratings. Management remains overweight in financials but will continue to take a pragmatic view, trimming exposure if spreads reach a level where further yield can be added elsewhere or reducing risk by switching into other bonds.

How has the fund performed?

Over the long term, the fund has achieved a convincing track record. On a nine-year basis the fund outpaced the category index on an annualised basis by 2.7 percentage points. The fund was launched in December 2015, so does not yet have a 10-year track record.

In 2022, the fund suffered its first negative calendar year, falling-7.1% in what was a tough year for global bond funds, especially those with higher exposure to high-yield bonds. More recently, it is notable that the one-year performance returned 8.9%, an impressive 7.3-percentage-point lead over the average of its Morningstar Category. What is equally impressive is this was achieved with a low level of volatility, which is attractive for investors seeking income with moderate risk.

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With an income yield of over 6%, this strategy remains one of the highest-yielding funds available to investors. Typically, higher yields come at the cost of higher credit risk. However, over the past 12 months, the portfolio's average surveyed credit quality is on par with peers, with both the fund and the average being rated BB.

Morningstar Total Returns (GBP) to 31/05/2025. Past performance is not a guide to future performance.

Why do we recommend this fund?

The Royal London Global Bond Opportunities Fund is a compelling option for income-focused investors seeking a diversified, actively managed global bond portfolio. It benefits from a strong management team and has been a consistently strong performer since the fund’s inception.

The fund has not experienced any defaults since its inception in 2015, but investors should be aware of the potential risks associated with high-yield and emerging market bonds, including potential losses due to interest rate changes and credit defaults. It could therefore represent a more adventurous holding and complement a more conservative fixed-income allocation of core government and investment-grade strategies.

The fund is competitively priced within its sector and the year ongoing charges figure (OCF) is 0.4%.

Please find the latest factsheet here.