The Threadneedle Absolute Return Bond Fund is one of only two funds in its sector to beat returns on cash this year. And decisively so: cash wouldn’t have made you much more than 5%, but the fund is up an impressive 9.4%. That’s even more than its stated aim, to beat Libor by 3% every year (Libor is currently at around 5.7%).
Much of this can be put down to the fund’s flexibility: it can go long and short on government and corporate bonds and manager Quentin Fitzsimmons is also allowed to dabble in currencies. He’s done well on this, going long the yen (this year’s best-performing currency so far) and short the currencies of economies with current-account deficits, such as the Turkish lira.
The fund isn’t perfect, says Mark Dampier of Hargreaves Lansdown in The Sunday Times. Like all absolute-return funds it’s sold with the idea that it’s capable of making steady absolute returns. Yet its returns have yo-yoed since its launch in 2005 and it has “suffered periods of underperformance”. In its first 18 months it returned just 4%.
Still, if you want to be in the corporate bond and the currency markets, this is probably the fund to go for. Fitzsimmons is doing a good job of taking advantage of market volatility, and he comes pretty cheap too: the total expense ratio on the fund is 1.49% and the minimum investment only £2,000.
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Threadneedle Absolute Return Bond Fund top ten holdings
| Name of holding | % of assets |
| Treasury 2.5% index-linked STK 20 | 18.80 |
| FUT: US Long Bond (CBT) Sep 08 – EXP | 4.50 |
| European Investment Bank 6.25% 7/12 | 8.10 |
| BK Ned Gemeenten 4.625% 07/12/08 | 7.50 |
| Nordic Investment Bank 5.75% NTS 6/ | 6.30 |
| Kreditanstalt Fur Wiederafb 4.5% 7/ | 5.00 |
| Kreditanstalt Fr WDRFB 4.75% NTS 7/ | 4.40 |
| BAT 6.5% 13/11/2008 | 4.10 |
| BMW US CAP LLC 4.625% SNR NTS 28/11 | 3.90 |
| Eurohypo Europaische Hypothk 5% 15/ | 3.50 |