The Bluebay Financial Capital Bond Fund tops the ranking of best performing bond funds available for sale to investors in Hong Kong and/or Singapore, as measured on a three-year return basis in US dollars. The fund invests in contingent convertible (coco) debt of European banks, as Marc Stacey, co-manager of the fund, explained in an earlier interview.
While the top-10 list contains a mix of categories, from euro high yield, to China high yield, frontier market bonds and convertibles, two other coco funds have also made it to the list, the Credit Suisse (Lux) Contingent Capital Euro Fund and the Swisscanto (Lu) Bond Coco Fund.
Some of the funds have base currencies that are not US dollars. The table below also shows the three-year performance if the fund is kept in its base currency:
Ten best performing fixed income funds
| Fund | 3-yr Cumulative Return in US$ (%) | 3-yr Cumulative Return in base currency (%) |
| Bluebay Financial Capital Bond (USD) | 29.1 | 29.1 |
| Natixis Loomis Sayles High Income (EUR) | 23.68 | 15.11 |
| Aberdeen Global Frontier Markets Bond (USD) | 22.44 | 22.44 |
| Value Partners Greater China High Yield Income (USD) | 22.2 | 22.2 |
| Credit Suisse (Lux) Contingent Capital Euro (EUR) | 21.7 | 16.14 |
| Schroder ISF Euro High Yield (EUR) | 21.6 | 16.04 |
| Swisscanto (LU) Bond Coco (USD) | 21.58 | 21.58 |
| Deutsche Invest I Euro High Yield Corporates (EUR) | 21.17 | 15.64 |
| Franklin Global Convertible Securities (USD) | 21.16 | 21.16 |
| Silverdale Bond (USD) | 21.15 | 21.15 |
Data: FE Analytics, as of 30 June 2018.
Contingent convertible bonds are a type of debt issued mostly by European financial institutions, ranking below senior and subordinated debt, but not included in high yield bond indices.
The high returns of cocos the past three years stemmed mostly from tightening of the spreads vs other subordinated debt in the second half of 2016 and throughout 2017. In December, Stacey predicted the spreads tightening further. However, that didn’t happen and coco spreads actually widened in 2018, hurting the returns. The Bluebay fund lost around 2% in the first half of 2018.
Coco spread vs subordinated debt
Source: Credit Market Daily
Worst performers
In US dollar terms, the Threadneedle Absolute Return Bond Fund tops the list of poorest performers among fixed income funds over the past three years.
The Van Eck Unconstrained Emerging Markets Bond Ucits Fund was the third worst performer. The fund’s largest allocations at the end of May were to Argentina, Poland, Brazil and Colombia. The 40% decline in the Argentine peso since April and a 20% decline in the real since February likely contributed significantly to the loss.
Some of the funds have base currencies that are not US dollars. The table below also shows the three-year performance if the fund is kept in its base currency:
Ten worst performing fixed income funds
| Fund | 3-yr Cumulative Return (%) in US$ | 3-yr Cumulative Return in base currency (%) |
| Threadneedle Absolute Return Bond (GBP) | -28.27 | -14.56 |
| GF China RMB Fixed Income (RMB) | -17.29 | -11.63 |
| Van Eck Unconstrained Emerging Markets Bond Ucits (USD) | -14.8 | -14.8 |
| CMS China Opportunities Flexi (RMB) | -14.33 | -8.47 |
| Bosera Global Income Opportunities (RMB) | -13.12 | -7.18 |
| Harvest RMB Fixed Income (RMB) | -12.24 | -6.23 |
| Nikko AM World Bank Green (USD) | -12.19 | -12.19 |
| Edmond de Rothschild EDRF Return Plus (CHF) | -11.09 | -5.54 |
| Vontobel Value Bond (CHF) | -10 | -4.83 |
| Threadneedle (Lux) Global Opportunities Bond (USD) | -9.1 | -9.1 |
