Published On: 12 July 2023

Interest rates have risen sharply in the UK as the Bank of England has tried to get inflation under control. This has impacted markets as the cost of capital has risen considerably on the back of numerous rate rises. A decade of near zero interest rates had made fixed interest markets a challenging area to invest in as low rates pushed down yields, but with higher base rates, fixed interest markets are looking attractive.

Whilst sounding obvious, the heart of our risk allocation approach is to only buy funds we like and not invest in funds we don’t like. This meant there were swathes of fixed interest markets we have avoided, due to the prevailing risk/return profile or the inability of managers to deliver above-average returns on a persistent basis over time. A fund we have held over time is the Rathbone Ethical Bond.

Bryn Jones is a highly experienced manager, and in our opinion, one of the best investment-grade bond managers in the UK market. Jones joined Rathbone in November 2004 from Merrill Lynch to become manager of their Ethical Bond fund. Since taking charge of that fund, he has returned 99.83% compared to 72.03% for the sector average*. Assessing his career in more detail, he has out-performed more often than not over his 18 calendar years in charge of the fund, but importantly, the margin of out-performance is greater than the margin of underperformance when it occurs. This combination of persistently above-average returns and the difference in margins means Jones is able to compound out-performance over time.

We first bought the Rathbone fund when we formally launched our Environmental, Social, and Governance (ESG) focused portfolios in 2016, including it in our unconstrained models four years later.

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