Once upon a time, Richard Woolnough managed the largest fund in the UK retail market: M&G Optimal Income.
Longtime readers may recall his handsome compensation packages: in 2019, he took home £16.6mn for the cause as performance incentives from previous years of good performance took effect.
But the fund has fallen from £23bn in its heyday to just £1.3bn today, though part of the reason for this can be attributed to splitting the fund into a UK version and a European version after Brexit.
Another factor was Woolnough being on the wrong side of some duration calls from 2017.
Since those outflows began en-masse in 2018, the allocators we cover sold up or stayed away.
Four of the fund selectors we cover owned M&G Optimal Income at some point but the last of these sold in early 2019.
But our database shows Iboss has recently bought M&G Optimal Income, becoming the first allocator we cover to tip their toe in that particular pond for four years.
And performance may be the key: the fund is up 11 per cent this year to date, compared with the 5 per cent return from the IA UK Strategic Bond sector over the same time period.
That said, the fund hasn’t grown in size over the same period, though there’s many a bond manager who wishes their AUM was flat over the past 12 months.
Iboss chief investment officer Chris Metcalfe says this stability is what attracted him.
He said: “We last held the M&G Optimal Income fund back in November 2012. At that time, the fund had become too popular and too large for us to remain comfortable holding it.
“Since then, the fund has shrunk considerably, but the fund size has remained relatively stable over the last 12 months. Richard Woolnough and Stefan Isaacs have been managing the fund since its inception, and this wealth of experience plus the strong performance data persuaded us to bring the fund back into our Core range.”
Woolnough’s career got an early boost due to some sharp macro calls prior to the global financial crisis.
By selling out of bank bonds early, his Optimal Income fund strongly outperformed the market, especially in the five years after its launch in 2006.
And the fund manager seems once again to be bucking the conventional wisdom: all of his top 10 holdings are long-dated developed market government bonds, precisely the assets to own if recession comes, but also the source of much of the angst in fixed income markets over the past month or so, as markets scramble to reprice the prospect of interest rates staying higher for longer.
Fortune often favours the brave, though it’s a sign of how distorted the bond markets have become that owning long duration assets when the economic news lurches from the poor to the desperate, is now considered a brave call.
If the Lancastrian bond manager is right with his latest duration call, it could lead to more DFMs taking an interest in the coming months and a return to vogue for his fund.
Joseph Wilkins is a freelance journalist
