Best and Worst: International Fixed Interest Trusts

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The Independent Online
THE AVERAGE international bond unit trust has dropped by 2.5 per cent over the past year, while the UK funds have risen by 3 per cent, writes Caroline Merrell.

The effect of currency risk in bond funds is graphically illustrated by the poor performance of the bottom unit trusts over one year, as Providence Capitol, Legal & General and Sun Alliance funds were depressed by currency movements.

Providence Capitol's trust was hit by the devaluation of the Spanish peseta in the the summer. At that time the fund was overweight in Spanish bonds. John Gordon, investment director, said: 'The fund was hit by three or four things of that nature during the year. We have also been out of Japanese bonds which have performed well, and the yen was very strong last year.' He said performance had picked up over the last six months.

David Shaw, Legal & General bond director, said: 'Nearly all of the underperformance was to do with being overweight in US bonds and exposed to the dollar.' He also said the fund was underexposed to sterling bonds, which performed very well last year.

Sun Alliance was also heavily exposed to the US market. Martin Clements, investment researcher, said: 'We were too heavy into US bonds. We were hoping to make capital gains on the bonds themselves as well as on a strong dollar.' None of these funds use hedging techniques.

Guinness Flight's two top performing funds do hedge against currency exposure. John Stopford, fixed income manager, said: 'The most important thing is that currency is treated as a separate asset class. ' He said the Global High Income fund was overweight in Italian, Spanish and Danish bonds, which had the worst performing currencies last year, but the effect of currency exposure was diminished by hedging in the dollar and yen.

----------------------------------------------------------------- INTERNATIONAL FIXED INTEREST TRUSTS ----------------------------------------------------------------- The best pounds 1 Guinness Flight Global High Income. . . . 107.33 2 AES International Bond & Convertible. . . .105.70 3 Guinness Flight EMU. . . . . . . . . . . . 105.01 4 Baring Global Bond. . . . . . . . . . . . .102.93 5 Murray Global Bond Fund. . . . . . . . . . 102.30 The worst 26 Sanwa Global Bond. . . . . . . . . . . . . 93.68 27 Cannon International Currency Bond. . . . .93.23 28 Sun Alliance Worldwide Bond. . . . . . . . 93.10 29 Prov Capitol Worldwide Bond. . . . . . . . 92.25 30 Legal & General International Bond. . . . .90.93 Table shows the value of pounds 100 after one year, offer to bid. ----------------------------------------------------------------- Source: Micropal -----------------------------------------------------------------

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