S&P diversified fixed interest income funds ratings mixed

Only one fund has been upgraded as part of Standard & Poor’s Fund Services’ ratings of funds in the diversified fixed interest income subsector, while five have been downgraded.

The Schroder Hybrid Securities Fund was upgraded from three stars to four, something S&P Fund Services analyst David Erdonmez said reflects S&P’s “increased conviction in the team’s asset allocations skills”. He added that the addition of more staff has increased the team’s already strong experience.

The sector is predominately made up of heavily focused credit funds with performance targets of between 100 and 300 basis points over the UBS Bank Bill Index.

“Overall, funds in the sector have produced mixed returns, which is not surprising considering the diversity of investment mandates,” said Erdonmez.

“Funds that have allowed a flexible allocation into higher quality liquid investments fared well during the market decline, as managers tactically allocated to these sectors in order to protect portfolios. Conversely, over recent months these funds have underperformed their more aggressive peers, which have bounced back from their March 2009 lows.’

He said the correlation with the equity markets over the last 12 months to three years has been due to the peer group’s credit focus and short duration profile.