A quality fund for volatile times

published 23 May 2007

"Stephen Snowden is not a man to shirk a challenge," says Money Marketing. "Whether it is skiing down the steepest black run in Alpe d'Heuz or taking the reins of a fund which has been the top performer in its sector for the last three years", the ski mad Ulsterman is up for anything. Which is why when asked to take over one of the UK's best performing bond funds in 2004, he didn't hesitate.

And over the past three years, he's turned out to be a good choice for his employer, turning the Old Mutual Corporate Bond fund into the sector's most successful. Over the past five years, it's returned 34.6%, against a sector average of 22.0%.

Snowden spurns some of the more common additions to bond managers' portfolios and invests whenever possible in "assets that provide a decent yield", says the FT. "Unlike many competitors, I don't have significant pools in government bonds or cash," he tells the paper. He can put up to 20% of the fund's assets into riskier bonds, and uses the allowance to the full. He puts most into property-backed unrated bonds, which he says "are largely ignored by investors because they are unrated". But like most things property-related, they have done well in the past two years.

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The rest of the portfolio also has a lot of exposure to property, with more than 50% in bonds backed by physical assets like pubs, supermarkets and student accommodation. This, he tells the FT, provides greater downside protection. He is upbeat on the outlook for bonds, reckoning that recent equity-market volatility will see a "flight to quality", boosting demand for funds like his own.

Tel: 020-7332 7500

Old Mutual Corporate Bond fund top ten holdings

Name of holding % of assets

BAA Ltd 5.125% NTS 15/02/23 GBP5000 2.10

First Hydro Finance 9% GTD SEC BDS 2.10

Residential Capital Corp 6.375% REG 1.80

Imperial Tobacco Finance 5.5% GTD N 1.80

Highbury Finance BV 7.017% NTS 20/3 1.80

Mitchells and Butlers 5.574% BDS 15/1 1.80

Royal and Sun Alliance Insurance GR 6 1.70

QBE Capital 6.857% 1.60

Lend Lease Europe Finance 6.125% BDS 12 1.60

British Telecommunications 3.50% I 1.60

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