Rated Funds update: UK and global bond funds

UK bonds: Important diversifier

UK bond funds are not the popular choice they were, as yields have come down and concern that interest rates may be about to rise has grown. However, they remain an important diversifier in a balanced portfolio.

Three of our four bond fund award winners were already on our Rated Funds list. The one addition is our prize-winning smaller bond fund, Marlborough Bond Income, managed by Geoff Hitchin and Nicholas Cooling.

Although more than half the fund is invested in the UK, it also holds international bonds. The fund can invest in any grade of bond, although its managers generally take a cautious approach.

At the same time, we have decided to withdraw Legal & General Fixed Interest from our Rated Funds list, following the news that its manager Richard Hodges is leaving.

While we have no reason to doubt Barnard-Smith's ability, we feel we do not know enough about his track record to maintain the fund on the list for the time being.

Global bonds: Still sought for income

Global bond funds generally have held up well over the past six months, and emerging market bonds in particular have seen a resurgence in popularity.

There are two additions to our Rated Funds list in this category. One that should have been on our original list in March is Axa Global High Income.

This fund is included in one of our model portfolios (higher risk, immediate income).

Managed by James Gledhill, it invests in a broadly diversified portfolio of sub-investment-grade bonds. Gledhill believes this sector still looks relatively attractive to income-seekers.

The second addition is Legg Mason Brandywine Global Fixed Income, which won our best larger global bond fund award this year.

Although it invests primarily in government bonds from developed countries, its holdings are well-diversified and include holdings of Mexican and Polish bonds as well as US and UK securities.

Under review in this sector are M&G Global Macro Bond and Old Mutual Global Strategic Bond funds. We rate the managers of these funds highly, but with these "go anywhere" funds there is always a chance that even the most capable managers will make wrong calls.

We hope this is a temporary lapse and that they will be back on form soon.