Fund Spotlight: a portfolio to back as cash rates fall

Investors have been able to achieve attractive short-term yields in recent years via cash deposits and money market funds, which aim to preserve capital and provide modest returns by investing in short-term, high-quality cash-like instruments such as treasury bills and bank deposits.

However, as inflation pressures ease and interest rates in the UK and in Europe especially have begun to move lower, the income available from cash is likely to decline over time.

• Invest with ii: ​​Top ISA Funds | Top Junior ISA Funds | Open a Stocks & Shares ISA

Against this backdrop, sterling corporate bonds are increasingly coming back into focus as a way to lock in more attractive yields while maintaining a relatively defensive risk profile.

For investors seeking dependable income and diversification away from cash and gilts, the Royal London Corporate Bond M Acc fund represents a compelling option.

The fund provides access to a diversified portfolio of UK-focused corporate bonds and aims to deliver a stable income stream with lower volatility than more adventurous credit strategies.

The fund is managed by Shalin Shah and Matt Franklin, experienced members of Royal London Asset Management’s sterling credit team.

Shah has been involved with the strategy since 2016, while Franklin joined as co-manager in 2022 after several years as a credit analyst in the team. They are supported by one of the largest and most established sterling credit research teams in the UK market.

The fund’s objective is to deliver a combination of income and capital growth over the medium to long term by investing primarily in sterling-denominated investment-grade corporate bonds.

• Proposals ease corporate bond access for retail investors
• Bond Watch: four funds for different types of investors

While the fund is managed relative to a benchmark, the managers retain sufficient flexibility to add value through active security selection and sector positioning.

What does the fund invest in?

The fund invests predominantly in investment-grade UK corporate bonds, with a strong emphasis on capital preservation and credit quality.

Typically, more than 80% of the portfolio is rated BBB or above (the investment-grade category), with more limited exposure to lower rated and unrated bonds, helping to keep overall credit risk at a moderate level.

A key feature of the strategy is its focus on bonds that receive less attention from the wider market, including debt issued by smaller companies or through smaller bond issues. These bonds can offer higher income than more widely held alternatives, without necessarily taking on a higher level of risk. The managers place particular emphasis on how each bond is structured and the protections in place for investors, with a preference for secured or asset-backed bonds where available.

• Investment outlook: expert opinion, analysis and ideas
• DIY Investor Diary: ‘quant’ approach goes big on gold and bonds

The fund is well diversified, typically holding between 250 and 350 individual bonds, which helps limit the impact of any single issuer encountering difficulties.

Interest rate sensitivity is actively managed and generally kept broadly in line with the wider UK corporate bond market, meaning that relative performance is not overly driven by movements in interest rates.

Financials are a meaningful allocation in the portfolio, reflecting the depth of the sterling corporate bond market in this area. Banks, insurers and financial services companies have historically accounted for a significant share of holdings (around 40%), alongside exposure to sectors such as utilities, real estate, consumer goods and infrastructure.

A point of differentiation for this fund is the allocation to structured credit of around 30%, which is higher than many of its peers. Structured credit consists of debt instruments pooled and sliced into tranches with different risk and return characteristics, providing additional yield but with added complexity and credit risk.

Since the global financial crisis, banks and insurers have strengthened their balance sheets and operate under much tighter regulatory oversight. As a result, many now offer attractive yields supported by relatively stable credit fundamentals.

The managers take a pragmatic approach to sector allocation, adjusting exposures as valuations change or more attractive opportunities emerge elsewhere.

How has the fund performed?

Morningstar Total Returns (GBP) to 31/12/2025. Past performance is not a guide to future performance.

The fund has delivered a strong and consistent long-term record, outperforming both peers and the broader sterling corporate bond market over multiple market cycles.

While 2022 was a challenging year for most bond funds due to rapidly rising interest rates, the fund proved relatively resilient and subsequently recovered as yields stabilised.

Looking at more recent performance, the fund has outperformed its benchmark and peer group in each of the last five calendar years.

• Interest rates cut to 3.75%: the impact on your portfolio
• 5%-plus yields: fund and investment trust ideas in 2026
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

Higher starting yields have materially improved the income and return outlook for sterling credit, and the fund has benefited from this environment by delivering competitive returns with comparatively low volatility.

This combination is attractive for investors seeking income with a measured level of risk.

The fund’s yield, currently around 5 to 5.5%, is attractive relative to its longer-term history and to cash rates, particularly for investors looking to lock in income over the medium term rather than rely on variable short-term returns.

Why do we recommend this fund?

The fund stands out as a high-quality, actively managed sterling credit strategy. It benefits from an experienced and well-resourced investment team, a disciplined approach to credit research, and a long-term investment philosophy that has proved effective across different market environments.

The fund is well suited as a core fixed-income holding, complementing allocations to cash and gilts while offering a higher level of income.

However, investors should be aware that the fund is exposed to credit risk and interest rate movements. on account of higher allocation to lower-rated issuances and duration.

The fund is competitively priced within its peer group at 0.56% and represents a credible option for investors seeking reliable income, diversification and capital stability as interest rates move lower.

Please find the latest factsheet here.