Why invest in strategic bond funds?
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Article Type
Market Updates
Topic
Opinion
Published
September 25, 2025
Read time
10 mins
Authors
Colin Finlayson, CFA
Alexander Pelteshki, CFA
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Strategic bond funds can offer investors unparalleled flexibility in fixed income investing. They provide access to global markets, exposure to multiple currencies and a broad range of asset classes – all within a single, professionally managed fund. With no geographical or sectoral constraints, these funds can adapt quickly to shifting market conditions, capturing opportunities that more traditional, single-market approaches may miss.

 

When it comes to investing, more choice can mean better outcomes. A broader opportunity set can help investors enhance returns, manage risk more effectively and achieve stronger diversification than a limited or constrained approach.   

 

This is precisely what strategic bond funds are designed for. They give investors access to a wider range of opportunities that are actively managed through market cycles. 

 

By investing across different areas of the bond market, these funds can provide a more efficient way to capture the various risks and returns available in fixed income. The benefits of strategic bond funds can include:

 

  • Access to a broader investment universe
  • Enhanced security selection process
  • Flexibility to take advantage of shifting markets
  • A stronger risk/return profile
  • Greater diversification.

 

Wider asset class opportunities

Once investors decide to allocate to fixed income, the next challenge is choosing where within the bond market to invest. Changing economic factors, political developments and geopolitical risks can make it difficult to decide between government bonds, investment grade and high yield corporate bonds, or emerging market debt. 

 

Different factors drive different parts of the bond market, so what benefits government bonds may not benefit corporate bonds. Equally, the factors supporting developed markets may be less favourable for emerging markets. As Chart 1 shows, performance across various bond markets can vary meaningfully from one year to the next, making market selection a challenge for long-term investors.

 

Strategic bond funds, however, can help address these difficulties by offering the flexibility to allocate dynamically across the fixed income landscape, adjusting their positioning based on where the most attractive opportunities exist. 

 

Chart 1: Annual performance across bond markets

Source: Bloomberg/Aegon Asset Management. 1-year to 31 December 2024. Includes the following indices: Bloomberg Global Aggregate Corporate Total Return Index Value Unhedged USD for ‘Global Corporate’; Bloomberg Global High Yield Total Return Index Value Unhedge for ‘Global High Yield’; Bloomberg Global Aggregate Treasuries Total Return Index Value Unhedged USD for ‘Global Government’; Bloomberg Emerging Markets Sovereign TR Index Value Unhedged USD for ‘EM Sovereign’; Bloomberg EM USD Corp Quasi-Sovereign TR Index Unhedged USD for ‘EM Corporates’.

 

Improved risk/return profile

By investing strategically in this way, investors benefit in three key ways. First, strategic bond funds eliminate the need for end investors to assess and switch between asset classes themselves.  Second, the blend of positions in these funds can lead to a better risk/return profile than a single asset class solution. And third, by combining investments across different areas of the market, these funds offer broader diversification, which reduces overall portfolio risk while unlocking broader opportunities to generate returns.

 

Chart 2: Risk-return profile of single markets versus strategic bond funds

7yr annualised total return vs standard deviation

Outcomes, including the payment of income, are not guaranteed. Source: Aegon AM, Bloomberg, as of June 30, 2025. Fund performance and volatility is for the Aegon Strategic Global Bond Fund B Inc USD share class. NAV to NAV, noon prices, income reinvested, net and gross of ongoing charges, excluding entry or exit charges. Returns and volatility is based on monthly returns. Indices shown: Bloomberg Global Aggregate TR hedged to USD Index, Bloomberg Global Treasuries TR hedged to USD Index, Bloomberg Global Inflation-Linked TR hedged to USD Index, Bloomberg Global Aggregate Corporate TR hedged to USD Index, Bloomberg Global High Yield TR hedged to USD Index, Bloomberg EM Hard Currency Aggregate TR hedged to USD Index, Bloomberg US Aggregate TR unhedged USD Index, Bloomberg Euro Aggregate TR hedged to USD Index, Bloomberg Sterling Aggregate TR hedged to USD Index, Bloomberg Sterling Gilts TR hedged to USD Index, Bloomberg Sterling Non-Gilts TR hedged to USD Index.

 

Enhanced security selection

Expanding beyond your home market materially increases the pool of available bonds. By embracing a global approach, investors broaden their opportunity set in a way that domestic markets alone cannot. As Chart 3 shows, the number of bonds issued in the UK or US represents only a fraction of the overall global bond market. 

 

Chart 3: Opportunity set across global bond markets

Currency

Issuers

Issues

USD

3,403

17,280

EUR

1,301

7,601

GBP

499

1,293

CAD

339

1,712

AUD

172

589

JPY

121

941

GLOBAL

6,069

30,860

 

Source: Bloomberg/Aegon Asset Management. As at 30 May 2025. Bloomberg Global Aggregate Index.

 

For portfolio managers with a keen focus on idiosyncratic opportunities, a global approach provides a wider range of companies and bonds to choose from, which, in turn, increases the ability to add value from bottom-up security selection.

 

Consider a company that has issued similar bonds but in different currencies, for example. Although the bonds may have all the same characteristics, it can be cheaper to buy in one currency versus another. Therefore, a fund with the flexibility to invest across currencies can choose to buy the bond offering the best relative value, whether in terms of yield or credit spread. This provides an additional avenue to add value that a single-currency solution simply would not offer.

 

Chart 4: Vodafone 2037 maturity bonds differ across currencies

Source: Bloomberg/Aegon Asset Management. As at 29 August 2025. Option-Adjusted Spreads (OAS) and Yield-to-Worst of Vodafone bonds: VOD 6.15 02/27/37 (USD), VOD 1.2 07/10/37 (JPY) and VOD 2 7/8 11/20/37 (EUR).

 

Advantages of flexible market selection

Across the cycle, economies often perform differently.  While markets are frequently positively correlated, the performance of one can diverge from that of another.  For example, the differences in returns between the US Treasury, German Bund and UK Gilt markets can be meaningful. Therefore, the ability to own or not own these assets at different times can be advantageous compared to being restricted to a single market, as the chart below shows.

 

Chart 5: US Treasurys & German Bunds historical performance

Source: Bloomberg/Aegon Asset Management. 31 January 2000 to 30 May 2025. 10-year US Treasuries relative to 10-year German Bunds.  

 

There are also attractive investment opportunities outside of core markets. Positions in bonds from Australia, Canada, New Zealand or Scandinavia can offer both diversification and alpha potential. These economies can find themselves at different points of the interest rate cycle compared to the US, Europe or UK.

 

Chart 6: 10-year Australian versus UK yield differential

Source: Bloomberg/Aegon Asset Management. 31 December 2004 to 30 May 2025. 10-year Australian Government Bonds relative to 10-year UK Gilts.

 

It’s a similar story for corporate bonds. The level and changes in credit spreads can vary from market to market and from year to year. Therefore, being able to select between regions has clear benefits. 

 

Chart 7 illustrates the annual change in credit spreads in sterling, US dollar and euro markets.  While at times these markets may move in unison, they can also move differently, presenting opportunities for global investors to switch between them.

 

Chart 7: Corporate bond spread changes in GBP, USD and EUR

Source: Bloomberg/Aegon Asset Management. 31 December 2014 to 31 December 2024. Bloomberg Global Aggregate Corp - European Euro Total Return Unhedged USD for ‘EUR’; Global Aggregate Corporate - United States Dollar TR Index Unhedged USD for ‘USD’; Bloomberg Global Aggregate Corp - U.K. Pounds Sterling Total Return for ‘GBP’.

 

Is it time to get strategic with fixed income?

Strategic bond funds clearly offer investors access to a broader set of opportunities across asset classes and currencies. By leveraging these additional dimensions, they aim to deliver an attractive risk/return profile, which is often beyond the reach of single asset class or single market strategies.

 

At Aegon Asset Management, we have a long track record of managing strategic bond funds and make full use of the flexibility they offer. Our Strategic Global Bond Fund aims to capture opportunities across the fixed income universe by combining top-down economic insights with bottom-up credit research to generate returns through the cycle. It provides investors with core exposure to fixed income markets that can be held in all market conditions. At the same time, its low correlation to other asset classes complements other equity and asset class strategies within a diversified portfolio.

Important Information

Authors

Colin Finlayson, CFA
Portfolio Manager

Colin Finlayson, portfolio manager, is a member of the global rates and multi-sector portfolio management teams.

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Alexander Pelteshki, CFA
Portfolio Manager

Alexander Pelteshki, portfolio manager, is a member of the investment grade and multi-sector portfolio management team. He specializes in top-down asset allocation, global strategic bond and global credit portfolios.

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