Do You Know What Your Fixed Income Sleeves Are Doing?

Morningstar's Michael Dobson compares the effect of differing bond sub-funds on similar balanced funds from Mawer and Manulife.

Michael Dobson 14 April, 2023 | 4:08AM
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Michael Dobson: Two funds could look similar, but investors should take note of the differences. Even one difference alone can make an outsized impact, even in the short term. Take, for example, Mawer Global Balanced (MAW130) and Manulife Global Balanced (MMF4635). Mawer manages both funds and runs them the same way, except for one difference. While the Mawer version only holds one bond fund, the Manulife version holds two. Added in and separately managed by Manulife, the Manulife Unconstrained Bond Fund (MMF620) has a slightly lower credit quality and makes for a bumpier ride when markets jump around.

The first three months of this year serve as a good example of how the two funds behave because of their difference. Both funds delivered strong returns in the face of an international banking crisis in 2023 but took distinct journeys to get there. At one point, Mawer Global Balanced out-earned Manulife Global balanced by over 0.5%. That's quite the departure when they're nearly the same fund, it's just one position that's different. A momentary departure in performance between the two has happened before, though more severely.

Take the last quarter of 2018 when markets roiled with the trade war raging on and interest rates increasing. Market pessimism and an uncertain geopolitical environment didn't serve Manulife well with Mawer Global Balanced out-earning its Manulife counterpart by 1.4%. Another example is the first three months of 2020, during the COVID drop, when uncertainty was at its peak. High yield debt crumbled, dragging Manulife Global Balanced by more than 2% against Mawer in that period.

I do want to emphasize that these examples are short-term deviations. In the long term, as we discussed last week, the riskier bond sleeve bet for Manulife paid off at the five-year mark. The equity sleeve in both funds overwhelmingly contributed to the long-term returns to both funds. But when comparing Manulife Global Balanced and Mawer Global Balanced, even though they look similar, be aware of the difference. Even one holding can change a fund dramatically.

For Morningstar, I'm Michael Dobson.

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Michael Dobson  Michael Dobson is an Associate Manager Research Analyst at Morningstar Canada

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