Vanguard, Pimco top fixed interest class

Index hugger Vanguard and specialist bond manager Pimco have been rated the pick of international fixed interest managers by research group Morningstar.

In its latest sector wide review of global fixed interest managers, released today, Morningstar awarded both Pimco and Vanguard a ‘highly recommended’ rating - the research house’s highest overall ranking.

The two fund managers’ flagship international fixed interest funds - the Pimco Global Bond fund and the Vanguard Wholesale International Fixed Interest Index fund - were given a five star rating.

Other mangers to perform well were Barclays Global Investors, BT alliance partner Blackrock and Macquarie, all of whom were handed a ‘recommended’ rating by Morningstar.

The research house’s report into the sector said government-only global bond managers had struggled to add value after fees and would continue to do so.

It said the research house favoured index managers, which have cheaper fees, over government bond exposure, and proven “broad market-based” managers to make the most of opportunities in the non-government bond market.

“Our top picks were Vanguard and Pimco for each of the above,” the report said.

Morningstar said it was becoming increasingly difficult for managers to add value in the global fixed interest market.

“The changing nature of the global bond market makes it increasingly difficult for fund managers to add value from the two traditional strategies of active interest rate and currency management,” the research house said.

“While interest rate management is still an important strategy, particularly in a rising interest rate environment, in itself, an interest rate strategy is no longer a key and reliable alpha source.

“Our analysis suggests that employing a broad market based strategy, which attempts to exploit inefficiencies in both the government and corporate credit markets, is the more consistent and sustainable way of adding value in global bonds.”