By ADRIAN LOWCOCK 04/12/2009
This week sales statistics for the unit trust sector were released by the Investment Management Association (IMA). The figures showed a surge in ISA sales for October 2009, due to the increase in ISA allowances for the over 50’s. Within the figures the corporate bond sector showed a net out flow of £11.8 million, having been the best selling sector for the last 10 months.
Who is selling Corporate Bonds?
The statistics revealed that IFAs and Private Client brokers had been reducing exposure to corporate bonds, whilst direct investors and tied advisers (i.e. those who only sell certain providers products) were still investing in the sector.
Update
The last few weeks have witnessed volatility in both equity markets and investment grade corporate bond yields, but returns in these higher yielding parts of the credit market have continued to march steadily higher as investors look for income in low interest rate environments.
The rally, which has continued since March, has pushed valuations to levels where the yields are no longer as attractive and the opportunity for capital appreciation from here on in is significantly reduced. There are even some instances where some blue chip funds are paying higher dividends on their equity than the underlying Corporate Bonds.
Our view
For now the current backdrop of low interest rates, investor demand for yield and the willingness of the market to refinance companies are all positive for the asset class. However, the returns seen in the last 10 months are not likely to be repeated, we have slightly reduced our weighting in Corporate Bonds to reflect this and recommend investors seek exposure to the sector through Strategic Bonds such as Legal and General Dynamic Bond, M&G Optimal Income or Aegon Strategic Bond .
We also favour the UK Equity Income sector for yield, as many of the companies represented in this part of the market have not taken part in the rally to the same extent; with yields looking attractive we recommend Artemis Income or Rensburg UK Equity Income.
If there is anything you wish to discuss please call one of our Advisers on 020 7189 9999.
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