SECTOR PROFILE
compelling and yields on offer will aid investor total returns . But with deteriorating corporate fundamentals and a challenging rate environment to navigate , dispersion is likely to increase .”
Playing it safe To help navigate an environment that is improving , but still fraught with difficulties , Alena Kosava , head of investment research at AJ Bell , recommends keeping duration short . David Winckler , senior investment analyst at IBOSS , agrees with her . The group went into 2022 with relatively short duration and low exposure to government bonds , both of which proved to be astute calls . “ Today , we still have little gilt exposure due to their volatility ,” he adds . “ We prefer UK credit , as spreads look attractive at current levels . However , the economic environment is challenging , which is why we favour high-quality credit .” Winckler says IBOSS uses active funds in this area as they can capitalise on indiscriminate market moves and avoid exposure to issuers with weak balance sheets .
“ Some of our favourites in this space are Chris Bowie ’ s TwentyFour Corporate Bond fund and Matthew Russell ’ s
M & G Short Dated Corporate Bond fund ,” he says . “ The good thing is most of the bad news has now been priced in and sterling fixed income markets look distinctly more attractive than they did a year ago .” Stephen Snowden , manager of the Artemis Corporate Bond fund , says this is an important point and helps explain why he is locking in higher bond yields before inflation falls , rather than taking a safety-first shortduration approach . In late November , he told Trustnet : “ Inflation is 11 % but I think it will fall to around 3 % within a few years and we ’ re getting [ corporate bond yields of ] 6 %. While not compensating for inflation in the next 12 months , they should handsomely compensate you for years beyond that . “ The average life of a bond in the UK corporate market is nine-anda-half years , so if you buy now , you ’ ve got nine years of that very high income which will , on average , substantially surpass what inflation is delivering .”
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