Fund Battle: Jupiter Strategic Bond vs M&G Global Macro Bond

Rising interest rates have put bonds back on the investment agenda for both retail and professional investors.  

Yields are now well ahead of the UK inflation rate, at about 4% for gilts and 5.5% for investment-grade bonds, with high-yield bonds offering even more than that.  

In addition, with interest rates likely at their peak, bonds should also see their capital value increase as borrowing costs come down.  

But successfully navigating the world of bonds is not an easy task for retail investors.  

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First, access to most bonds is reserved only for large investors, so handing over the reins to a fund manager is the only way to own a diversified fixed-income portfolio. Second, understanding how different parts of the fixed-income world work is complicated, with many products on offer that carry a wide range of risks and opportunities. Finally, the economy is key to how bonds are priced, and professional investors should have a better grasp of the forces at play than most.  

Investors looking for a “one-stop shop” for their bond allocation could turn to a bond fund where the fund manager has the freedom to scour the global for the best fixed-income opportunities. 

Two funds recommended by ii’s team of fund analysts are: Jupiter Strategic Bond and M&G Global Macro Bond GBP I Acc.

In this fund battle, we look at how the funds invest and how they have performed to help investors understand which fund could be the best fit for them.  

How are the funds managed?  

Both can invest in bonds from all over the world, but the main difference is that M&G Global Macro Bond is in the Investment Association (IA) Global Mixed Bond sector, which means that it does not have to hedge its portfolio back to sterling.  

On the other hand, Jupiter Strategic Bond is part of the Sterling Strategic Bond Sector, meaning that it has to hedge its portfolio back to sterling or just invest in sterling-denominated bonds. This means that the fund manager seeks to eliminate the risks of currency swings and uses derivatives to achieve this.  

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In terms of asset allocation, as of the end of April 2024, the M&G fund has 53% in government bonds, 22% in corporate bonds, and 18.5% in emerging markets bonds. Jupiter has 58% in corporate bonds and 34.5% in government bonds, including those from emerging markets such as Brazil. They both can also invest small amounts in different bond sectors, such as asset-backed securities or floating rate bonds.  

The Jupiter fund has a duration of 9.85 and the M&G fund’s duration is 7.66. A higher duration means that the Jupiter portfolio is more sensitive to interest rate changes. Therefore, cuts in interest rates will likely cause this fund to rally more than its rival. While unlikely to happen, interest rate rises will likely cause the fund to fall more.  

The average credit rating, which reflects risk, of the bonds in Jupiter’s fund are BBB. This is a lower rating than the A+ average rating of bonds owned by M&G, suggesting it is taking more risk.  

Higher-quality bonds tend to yield less, and that is the case here. M&G Global Macro Bond has a distribution yield of 3.98%, while Jupiter Strategic Bond pays out 5.2%.  

Taken with the higher duration in the Jupiter portfolio, it means that the Jupiter fund is likely to be more volatile than M&G’s alternative, despite both owning diversified portfolios of hundreds of bonds from around the world.  

Who are the managers?  

Both funds have very experienced managers. Jupiter Strategic Bond has been run by Ariel Bezalel since 2008, alongside co-manager Harry Richards since 2019. 

Dzmitry Lipski, head of funds research at ii, says the managers are supported by 17 sector-focused credit analysts. He adds that Bezalel comes across as a pragmatic investor and has been able to consistently demonstrate a strong grasp of the macro environment, adeptly using the flexibility afforded to him by the investment process. 

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M&G Global Macro Bond has been managed by Jim Leaviss since 1999, and deputy manager Eva Sun-Wai has been on the strategy since 2021.  

Lipski says that M&G's 12 other fixed-income strategy managers, with their own areas of expertise, act as a sounding board for Leaviss, and their regular exchanges serve as an important source of idea generation as well. 

How have they performed?  

Shared data going back to June 2008 puts Jupiter Strategic Bond just ahead of M&G Global Macro Bond, with a 123.8% return compared with a 107.2% return, according to FE Analytics, and assuming that all income was reinvested. However, they were neck and neck at the end of 2023.   

Over the past 10 years, M&G is ahead, delivering a 33.7% return compared with a 20.1% return for Jupiter. Part of this was because Jupiter fell more during 2022, when interest rate rises caused bonds to sell off dramatically.  

Now that rates have likely peaked, and income from bonds has risen, analysts expect fixed income returns to be stronger in the future.  

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Looking at the volatility of the funds over the past 10 years, Jupiter has shown a larger “max drawdown”, which measures its biggest peak-to-trough drop. This was 20.4% for Jupiter and 16% for M&G, which backs up the view that Jupiter is managed more aggressively than the M&G alternative.  

Which should you buy?  

Both funds have experienced managers and offer access to diversified portfolios of bonds from around the world.  

The data shows that Jupiter has slightly lower-quality bonds – but still investment grade on average – than M&G. Investment-grade bonds are the safest class of corporate credit.  

Jupiter Strategic Bond also has a higher duration, which taken with the lower credit rating of the portfolio, means higher risk but higher yields. For investors looking for a more adventurous bond allocation, then this may be the better option. On the other hand, investors after less-risky bonds may prefer M&G. 

Because of this difference, if we see a bond market rally, sparked by lower interest rates, then Jupiter may perform better. But if rates stay higher for longer than markets expect, then M&G may be better positioned.  

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On M&G Globa Macro Bond, Lipski says: “The fund has delivered strong returns over the long term and we attribute this to Leaviss’ active management of the portfolio’s duration, credit and currency risks.  

 “We believe Leaviss’ deep and diverse experience is valuable here given the wide-ranging, macro-driven nature of this strategy. He also makes good use of the wider M&G team.” 

On Jupiter, Lipski says: “Bezalel has delivered strong absolute and risk-adjusted returns since inception, particularly by managing the strategy in a way that has protected capital on the downside.”

Are there alternatives?  

Instead of trusting an active manager to pick the right bonds, investors could look to own the entire market instead. 

An ii-recommended fund that does this is Vanguard Global Corporate Bond Index £ H Acc, which owns nearly 15,000 high-quality bonds. Over the past decade it has returned 11%, compared with 33.7% for M&G Global Macro Bond and 20.1% for Jupiter Strategic Bond. The downside of a passive approach is that there is no manager who can position the fund to defend against rising interest rates or profit from falling interest rates.  

Investors could also own a sterling investment-grade bond fund. Invesco Sterling Bond Z GBP Acc is a Super 60-recommended option. The highest allocation by sector is to financials, including lower-rated subordinated debt, which ranks below senior debt if a company falls into difficulty. The fund has a slightly lower level of interest-rate risk compared to the broader sterling investment-grade corporate bond market. It has an income yield of 4.2%.