Raymond James Funds Reams Unconstrained Bond – added to the Charles Stanley Direct Preferred List

Bonds can play an important balancing role in a portfolio. These financial ‘IOUs’ represent the debt of companies and other institutions and are generally less risky than shares. Bondholders just need a company or institution to retain its creditworthiness rather than grow profits ahead of expectations.

That’s why they provide diversification, and this has been helpful at times this year as stock markets fell in the wake of the trade frictions around US tariffs. Private investors often do not hold enough bonds as a counterweight stock market volatility. Although it’s also fair to say bonds have had volatile moments in recent years as inflation and interest rate expectations ramped up.

Bonds can also provide a regular income for those who need it, or that can be rolled up and compounded for those who want to grow their portfolio over the longer term.

Introducing the Raymond James Funds Reams Unconstrained Bond Fund

There are lots of fund options for investors wanting to include the asset class in their portfolios. Some funds specialise in particular areas including corporate bonds, government bonds or riskier high yield debt.

Others are generalists, offering a portfolio that spans a wide variety of bond types, with the fund manager aiming to capitalise on the best opportunities and adapt to the changing market environment. A risk to bonds is rising inflation and interest rates, which pushes yields higher and prices lower, but a flexible approach can help navigate this and maximise the potential of the asset class through good times and bad.

That’s the goal of the Raymond James REAMS Unconstrained Bond Fund, which is managed by a specialist bond team based in Indianapolis, Indiana with $22bn assets under management across their range. It’s a fund that caught the attention of our Research Team several years ago thanks to its consistent process, well-resourced management and strong returns in different market environments.

Flexible and opportunistic

This fund represents one of the team’s flagship strategies. The managers aim to be highly flexible and opportunistic, with their interpretation of the macroeconomic environment expected to be the primary driver of performance. There is no regard to any index or competitor benchmark, meaning the managers are free to invest in bonds from across the globe in the best way they see fit for the prevailing environment.

There is generally a bias to the US. It’s the largest market and the one the team know best, but importantly the impact of currency movements is stripped out of returns for UK investors buying the standard ‘currency hedged’ unit classes.

The team are prepared to forego income in pursuit of long-term overall returns, taking risk only when they believe appropriately compensated to do so. Their decisive approach has historically generated strong returns, keeping up when bonds are rising and tending to cap the falls – although past performance is not a reliable guide to future returns.

A ‘total return’ mentality

Taking risks when the opportunities arise and focus on preserving capital when things aren’t looking so good can be a tough ask at times, and there’s no guarantee the managers will get their tactics right. But the objective will resonate with a lot of investors who simply wish to make the most of the opportunities in bonds as an asset class and the important diversification they offer.

The mindset does mean income from the fund can fluctuate more than it does with a typical bond fund. There is no income target or objective, so those selecting income units (which are expected to be available shortly) will need to bear in mind that pay outs arise from portfolio positioning rather than dictating it. This means the fund could pair well with more traditional bond funds with explicit income objectives, or it simply represent a core part of an investor’s bond exposure where income isn’t a requirement.

A patient yet dynamic approach

The team have shown patience when fixed income markets aren’t offering appropriate value for taking risk, and have been decisive in adjusting their stance, especially in periods of market stress. 2020 was a good example. The managers went into the Covid-19 sell off defensively positioned and were decisive in adding risk through corporate debt when prices fell to extreme levels. Then, in 2022, the team got another big call correct by avoiding longer dated, more interest rate sensitive bonds as inflation flared up and they sold off.

Getting the ‘big picture’ right is what the team spend most time on and should be the main determinant of performance. Importantly, they are also able to move the portfolio around quickly. As a result, the strategy is highly flexible on interest rate sensitivity, credit quality, sector exposure and geographic allocation. However, no managers are immune to being wrong footed by markets in any given period.

It should also be noted the risks can be higher than for a standard bond fund. It can invest in all major parts of the bond market, including government, investment grade, and higher-risk high yield bonds as well as other specialist areas. It can also employ derivative instruments, such as options and futures contracts, as an investment tool. This is because the managers aim to be reactive to sharp market moves, and often the easiest and quickest way to gain exposure to a certain asset class or investment view is through these specialist markets.

Exclusive low costs through Charles Stanley Direct

As a part of the Raymond James Financial, Inc. group of companies we can offer an exclusive, cheaper version of the fund with an annual management charge of 0.25%. We believe this is excellent value for an actively managed fund of its type and we have therefore added it to our Charles Stanley Direct Preferred List of ideas for new investment across the major sectors.

Reams Asset Management is an affiliate of Raymond James and Associates, and Charles Stanley is part of the Raymond James Financial, Inc. group of companies.