Lincoln's top-performing corporate bond fund has passed its third anniversary with manager Goldman Sachs Asset Management pledging to maintain its first-quartile performance.
The fund, which invests across the bond spectrum, is currently ranked second out of 74 funds in its sector with a rise of more than 28 per cent since launch in March 2001.
Manager Jim Cielinski, GSAM's managing director of global fixed-income and currency management, says he believes that the credit quality of investment-grade firms is still improving, offering a host of low-risk investment opportunities.
He says: “By combining such investments with a high-yield strategy, we have further opportunities to buy issues with attractive returns, thereby helping to benefit the fund in the long term.”
Only about 6 per cent of the fund is currently invested in high-yield bonds, largely those with a B rating.
The fund also invests in the Goldman Sachs high-yield portfolio but the higher-risk element is capped at 10 per cent of the portfolio.
Up to 15 per cent can be invested in gilts but this diversification is usually a last resort when GSAM's team sees no alternative opportunities in corporate bonds.
Cielinski says he is not interested in making such asset allocation decisions, preferring instead to rely on GSAM's analyst-based approach.
He says: “It makes sense for the person who is most exposed to the company to make the call. Price is the key variable – if the analyst is focused on relative value, I do not see why the manager is going to do a better job.”
He says analysts have to be portfolio managers within their own sectors, identifying key drivers and conducting additional research on them. The focus is on relative value, which is something that Cielinski believes is helped by his team's policy of spending time with the equity analysts.
He says: “The interaction helps a lot, especially with things such as managing event risk. If the manager of a firm gets out of bed the wrong side that day and decides to engage in merger and acquisition activity then that is the sort of thing that tends to be picked up by the equity team.”
However, despite the strong performance that Cielinski's team has helped generate, the fund has still to pass the £60m mark but Lincoln is optimistic that inflows will accelerate now that the fund has achieved its three-year track record, particularly given the fact that it is the only single-strategy vehicle through which UK investors can access GSAM management and process.