FIXED INCOME FUNDS
THERE ARE
CURRENTLY 92
IA STERLING
CORPORATE BOND
FUNDS TO CHOOSE
FROM. STRIKINGLY,
NOT ONE FUND IN
THE SECTOR HAS
LOST MONEY OVER
ONE YEAR
STERLING CORPORATE BOND
This sector was traditionally used to
generate income. It still fulfils this
purpose, but with interest rates and
yields so low, the payouts are not
as attractive as they once were. As
such, Square Mile’s head of research
Victoria Hasler says investors
should ascertain the type of income
each fund in this sector produces
and find one that best suits their
needs.
“For example, does the fund
target a certain amount of income
or does it maximise the income it
trustnet.com
can produce while maintaining the
capital value of the investment?
For many, the type of income will
matter far more than the absolute
level,” she explained.
There are currently 92 IA Sterling
Corporate Bond funds to choose
from. Strikingly, not one has lost
money over one year, with the worst,
L&G Short Dated Sterling Corporate
Bond Index, up 2.9 per cent. The
best, Schroder Long Dated Corporate
Bond, returned 20.2 per cent over the
same period. The average fund is up
10.2 per cent.
The mean return of the sector over
three and five years is 24.7 per cent
and 38.6 per cent, respectively; again,
none of its funds sits in negative
territory over either time period.
HIGH YIELD BOND
As their name suggests, high yield
bonds tend to produce a much
higher level of income than their
investment grade counterparts, but
this also comes with an increased
level of risk.
Hasler notes there are two main
risks to investing in this sector:
default risk and capital volatility.
She says the first of these can be
mitigated by buying a fund run
by a trusted manager who avoids
securities threatened by this
scenario and who diversifies the
risk further by buying a variety of
bonds. However, she warns that
while the fund manager can to an
extent manage the increased level
of capital volatility expected from
these instruments, it is the price an
investor has to pay for a higher level
of income.
Returns have also been a lot less
secure than those from corporate
bonds. The average fund in the
sector is up only 1.5 per cent over
one year, with several of the 32
constituents posting capital losses.
The average return jumps to 21.7
and 35.3 per cent over three and
five years respectively, meaning
the sector has underperformed its
Corporate Bond counterpart over all
time periods.
STRATEGIC BOND
The IA Sterling Strategic Bond sector
is sometimes seen as the multi-asset
version of all the bond types on
offer. However, while this allows for
plenty of choice, it also presents a
challenge for anyone who is not a
fixed income expert.
The flexibility afforded to
strategic bond managers has made it
Cockerill’s current sector of choice.
He says: “We are cautious on the
whole fixed income sector right
now and if we were looking to buy
the asset class, it would be strategic
bonds. The flexibility these funds
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