Fixed income

Bond markets provide governments and companies with a means of raising capital for projects and managing their cashflows. As the largest securities market in the world, the bond market also offers investors enormous scope to introduce potential benefits to portfolios.

Fixed income funds remain a core asset class for investors seeking both income and capital growth. No matter what is going on in the world, governments generally pay their coupons and companies usually continue to pay their creditors.

Over many successful years, Royal London’s fixed income team has gained a reputation as one of the UK’s leading managers of government and corporate bonds, currently managing around £78 billion of liquidity and fixed income assets (as at 31 December 2023, subject to rounding).

We cover the major asset classes within the fixed income market, from the most conservative liquidity funds, through government bond funds and sterling investment grade, to more volatile global high yield credit markets.

We believe our patience, expertise and experience sets us apart in the fixed income sector. Although different approaches are more suited to different parts of the fixed income universe, all of our strategies are underpinned by a simple philosophy of identifying and exploiting inefficiencies in those markets.

Our team

The fixed income team is a compact one, led by extremely experienced individuals with proven success through numerous market cycles. Our team of over 30 investment professionals has an average level of experience of over 15 years, with a deep insight into investing across all stages of economic and market cycles.

The structure and expertise within our team are integral to our investment process. We adopt a collegiate approach, working closely, with team members to learn and benefit from one another’s research and experience. We have confidence in our own opinions and don’t bow to the consensus.

Liquidity and government bonds 

For liquidity funds, capital preservation is the top priority. In addition to traditional liquidity funds with a focus on money market instruments, such as overnight deposits and certificates of deposit, we offer funds that combine these assets with targeted short-term high quality credit assets. This gives investors the option to look for an enhanced return – see our dedicated liquidity pages for more information.

Government bond markets are one of the more efficient markets within the fixed income universe. However, we believe that there is the potential for week-to-week mispricing, and small differences over time will present opportunities - this behaviour can be seen in both UK and global markets. To take advantage of these characteristics our funds will take broad strategic positions, but then trade very actively around these on a short-term basis.

Sterling investment grade credit

We believe that we have a unique approach to managing sterling credit portfolios. This approach has helped us build a successful long-term track record, and has led to long-term client relationships.

Sterling credit is a key area for us, and we occupy a significant position in the market. We focus on what we understand well and drive value from it. Managing sterling credit portfolios is about searching for inefficiencies and mis-valuations, and analysing the behaviour of investors. We believe the risk in credit fundamentals is misunderstood: an over-reliance on benchmarks and credit ratings, as well as undervaluing security, allows us to uncover opportunities. We believe that inefficiencies such as reliance on benchmarks are global in nature, while others, specifically around security, are particularly apparent in the UK investment grade market.

We manage credit portfolios on a medium to long-term basis, seeing ourselves as lenders of our clients' assets, rather than traders of bonds. We consider ourselves value investors, which means we emphasise our own research and prefer companies with sound business models and bonds that offer strong covenant protection and asset backing. 

Global investment grade credit and high yield credit

Investors are increasingly looking for ways to diversify their fixed income exposure. Global investment grade and high yield markets can provide this. We look at strategic and tactical opportunities, navigating the credit cycle and focusing on specific market inefficiencies, for instance, in the short-dated area of the global high yield market. When looking at global markets we also focus on the currency effect, where the same or similar bonds trade at different prices due to underlying currencies. As with our sterling credit strategies, rigorous credit analysis underpins our portfolios.

In our view, many investors fail to see the pay-off for investing in credit risk and over-estimate the possibility of default. In our experience, volatility, not default, is the primary risk to manage.

For selected global portfolios, we take a multi asset credit approach, increasing allocations to different parts of investment grade, high yield and loans markets, creating portfolios that are flexible and responsive to prevailing market and economic conditions.