The global government bond Morningstar category, launched in October 2024, reflects a growing fund landscape with 117 distinct offerings as of February 2025. Divergent economic structures, policy responses, and political backdrops shape investor sentiment.
In the US, managers continue to watch for signs of an economic slowdown, while UK gilts tend to be unpopular due to slow growth and rising inflation concerns. In Europe, peripheral countries such as Spain, Italy, and Ireland attract interest, while core European sovereigns such as France and Germany remain under pressure from ongoing political risks. Managers are easing their underweight stance on Japanese government bonds, anticipating policy normalization. Meanwhile, the Japanese yen remains a popular trade among the funds highlighted here.
In this light, BNY Mellon Global Bond and Colchester Global Bond are interesting analyst-rated strategies in the global government bond Morningstar category. Although both strategies have Morningstar People and Process pillar ratings of Above Average, they each offer investors something unique.
People
At Colchester Global Bond, investment decisions and positioning are driven by the views of the investment committee, which comprises all traders, analysts, and portfolio managers at the firm, including almost three-decade veterans Ian Sims and Keith Lloyd.
BNY Mellon Global Bond is led by experienced manager Jonathan Day and co-managers Ella Hoxha and Trevor Holder from Newton Asset Management, which has been fully owned by BNY Mellon since 2002. The trio each boasts roughly two decades of experience, while Day and Holder bring deep institutional knowledge, having joined Newton in 2002 and 2006, respectively. There have been some leadership changes, with Hoxha appointed head of fixed income in 2023, succeeding Paul Brain in anticipation of his retirement, and co-manager Carl Shepherd’s departure in October 2024. Nonetheless, the strategy remains in good hands.
The Colchester team has an edge over BNY Mellon in size, with 10 analysts covering developed and emerging-market sovereigns, compared to BNY Mellon’s four. While Colchester analysts are generalists, BNY Mellon’s team members are regional specialists. Team turnover has not been abnormal at BNY Mellon, but Colchester trumps many peers with exceptionally low turnover in its analyst ranks. However, at both firms, analyst coverage is robust and effectively supports the overall investment process.
Process
At BNY Mellon, the managers rely on the top-down thematic views of Newton’s investment strategy group, made up of asset-class leaders from across the organization, which seeks to identify disruptive structural changes or drivers of change that can materially affect bond returns. They then combine these top-down ideas with bottom-up country and instrument analysis, leaning on proprietary fundamental and quantitative models as well as data on market supply/demand dynamics in carrying out analyses of sovereign issuers and currencies.
In comparison, the Colchester process focuses on assessing value using proven economic frameworks, namely expected inflation-adjusted real return and purchasing power parity forecasts over the medium term. The team undertakes detailed country financial stability research and is one of a handful of sovereign bond managers that incorporates environmental, social, and governance factors into its process. The focus on real returns underscores both rate and currency analysis.
Portfolio
BNY Mellon invests mainly in G-10 government bonds and currencies. The team can also venture into off-benchmark supranational bonds (capped at 20 percent) and high-quality emerging-market debt (up to 15 percent). Here, currency bets are limited to 10–20 percent from the benchmark, while duration is kept within two years of the benchmark. Colchester tends to favor investment-grade-rated countries, with below-investment-grade government debt capped at 20 percent. Currency exposures stay within plus or minus 30 percent of the benchmark. Here, duration is kept within 25 percent of its FTSE World Global Bond Index benchmark.
Both strategies can exhibit high-conviction country bets. As of December 2024, BNY Mellon had 15 percent in the US (versus its benchmark’s 51 percent). Colchester allocated only 10 percent to the Eurozone compared to its benchmark’s 27 percent allocation, while Mexico, only 1 percent of the benchmark, stood at 11 percent. Active currency bets at BNY Mellon included an underweighting to the euro and an overweighting in the Australian dollar. Colchester’s currency expressions included a meaningful underweighting to the US dollar in favor of overweight positions in the Japanese yen and British pound.
Performance
The annualized return of both strategies’ representative share classes outperformed the Morningstar Global Treasury Bond Index and the average peer in the global government bond Morningstar category over the trailing five-year period through January 2025. That being so, during a market cycle, BNY Mellon’s high-quality bias may cause it to lag peers in market rallies but can benefit it during sell-offs or periods of heightened volatility.
In contrast, Colchester tends to be more volatile (as measured by standard deviation) due to its value-driven approach, concentrated bets, and active currency exposures (the latter often exhibiting higher volatility than bonds), which can lead to spells of elevated relative risk versus peers and its benchmark. For instance, 2024 was a challenging year for Colchester, with a negative 0.3 percent return compared to BNY Mellon’s 3.6 percent and the category benchmark’s 3.1 percent.
Case in point: currency exposure was the main drag on performance. While the underweighting to the euro contributed positively, the overweight positions in the Japanese yen, Swedish krona, and Norwegian krone more than offset this. At BNY Mellon, the team benefited from their off-benchmark allocation to New Zealand bonds and overweighting in Australian bonds, while the impact of currencies was less pronounced.
BNY Mellon vs Colchester in global bond funds
Elbie Louw, CFA, CIPM, is senior analyst, manager research at Morningstar Benelux. Morningstar is a member of Investment Officer’s panel of experts.