M&G Global Macro Bond: April 2025 fund update

• Jim Leaviss, who had managed the fund since inception in 1999, left M&G in 2024

• The new managers haven’t made lots of changes to the investment process

• The fund is in the Global Bond sector, rather than Strategic Bond, so the managers have more flexibility to invest in foreign currencies. This means the fund could help to diversify a UK-focused bond portfolio

• This fund does not feature on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The manager aims to generate a combination of income and growth over the long term. But as income isn’t a priority it might not appeal to portfolios invested for a high level of income. The fund could be held alongside equity funds for a diverse source of income or combined with more UK-focused bond funds to add geographical diversification to fixed income portfolios.

The fund has overseas currency exposure which could add diversification to a portfolio with currency hedged bond exposure. That said, the currency exposure can lead to large performance swings over the short term. We would therefore expect this fund to be held alongside other bond funds.

Manager

Jim Leaviss was lead manager of the fund since launch in 1999. He left M&G and the investment industry in August 2024.

Eva Sun-Wai and Robert Burrows are now co-managers of the fund. Sun-Wai joined M&G in 2018 on their investment graduate scheme, spending time rotating across several different bond teams. She joined the fund manager team in September 2019 before becoming deputy manager on this fund, as well as lead manager of the M&G Global Government Bond fund, in January 2021. She became co-manager alongside Leaviss on this fund in 2023.

Burrows joined M&G in 2007 and specialises in government bond investing. He has managed a number of investment strategies for institutional investors since he joined. He was named as co-manager alongside Sun-Wai on 1 August 2024.

Overall, it’s a shame to see Leaviss leave the industry, given his significant experience and knowledge of bond investing. We view Burrows and Sun-Wai as competent investors. However, the lack of a public track record for Burrows, alongside Sun-Wai’s relatively short time in the industry, were the reasons behind the removal of this fund from our Wealth Shortlist.

Process

The managers start with their 'bigger picture' macroeconomic outlook. This includes forming a view on economic growth, interest rates and inflation globally. This helps them decide how much to invest in different areas of the bond market.

The fund’s underlying investments tend to change a lot and can move quite quickly if the managers think this is necessary. They are likely to invest more in corporate (including high yield) and emerging market bonds when they are positive, and invest a greater proportion of the fund in government bonds when their outlook is cautious. Investing in high yield and emerging market bonds increases risk. They can also use derivatives to enhance returns. This allows them to quickly vary exposure to different types of bonds and currencies, as well as benefit from falls in asset prices and rising interest rates but is a higher-risk approach.

The freedom to buy bonds issued in different currencies also means movements in currency exchange rates can add or detract value. The managers therefore have a lot of flexibility in managing the fund, but trying to bring all of these different factors together can add risk. The fund may invest more than 35% in securities issued or guaranteed by a member state of the European Economic Area or other countries listed in the fund’s prospectus.

Since Sun-Wai and Burrows have taken over as managers, they haven’t made huge changes to the process previously adopted by Leaviss. One tweak they have made is around currency exposure. While the fund will continue to have overseas currency exposure, specific investments made on the basis that a currency will increase or decrease in value will be smaller going forward.

At the end of March 2025, the fund had 54.4% invested in developed market government bonds and a further 13.3% in emerging market bonds. While the managers continue to invest in corporate bonds, they are using derivatives to reduce the impact of changing prices in this area of the bond universe. In terms of currencies, the largest exposures are to the US Dollar, the Euro and the Japanese Yen.

The fund’s duration was 6.6 years at the end of March. Duration is a measure of the sensitivity of a bond‘s price to a change in interest rates and is measured in years. In general, the higher the level of duration, the more sensitive the fund is to interest rate changes.

Culture

The Fixed Interest team at M&G are very experienced investors. The fact Sun-Wai and Burrows can call on the views of this talented team should help them to make the most of the fund’s flexible, ‘go anywhere’ mandate to take advantage of the best ideas across the bond market.

The managers are incentivised based on the performance of the fund over a number of years, we think this is positive as it aligns their interests with those of investors in the fund. We think there are only a handful of investors with the skill to successfully manage a fund in this sector but the team at M&G are well equipped and have the resources to potentially do a good job for long-term investors.

ESG Integration

Environmental, Social and Governance (ESG) analysis is integrated into the research process. The managers think actively engaging with companies on these issues helps the team manage and potentially reduce risk.

While M&G applies a house-level exclusion for cluster munitions, anti-personnel landmines and companies with significant involvement in thermal coal, each fund manager is encouraged to think about ESG in a way that’s appropriate to their investment mandate.

M&G’s Stewardship and Sustainability team supports fund managers and analysts on ESG matters and coordinates the firm’s stewardship activities. It engages with companies on ESG issues and discharges the firm’s voting responsibilities, in conjunction with the fund managers. The firm publishes full voting reports on a quarterly basis and a rationale is provided for abstentions and votes against management. A voting summary and engagement case studies are made available in the firm’s annual Stewardship report.

While ESG is integrated into bond analysis, this is not a ‘sustainable’ fund and bonds are selected based on their return potential.

Cost

This fund has an ongoing annual charge of 0.65%, but we've secured HL clients an ongoing saving of 0.17%. This means you pay a net ongoing charge of 0.48%. This saving is achieved in the form of a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL account charge of up to 0.45% per year also applies, except in the HL Junior ISA, where no account charge applies.

Performance

Over the last 12 months the fund lost 0.49%* and has underperformed the IA Global Mixed Bond sector, which gained 3.35%. Past performance isn’t a guide to future returns. Given the change of manager in August 2024, performance prior to this date is attributable to Leaviss rather than the current management duo.

More recently, since the new managers have been in place, the fund’s duration positioning has added value for the fund. Duration is a measure of the sensitivity of a bonds price to a change in interest rates and is measured in years. In general, the higher the level of duration, the more sensitive the fund is to interest rate changes. As different government bonds across the world have reacted to ongoing volatility in markets, the managers have been able to take advantage of some of this volatility in a positive way for the fund.

However, some of the specific currency exposure to the Japanese yen has negatively impacted performance. So has some of the corporate bond exposure, with those bonds generally finding the recent market turmoil more challenging than government bonds.

At the end of March 2025, the fund’s distribution yield was 3.54%, although remember yields are variable and aren’t a reliable indicator of future income.