“Although that is a fake situation, it is the reality against which we have to invest.”
He is more worried about the sovereign bond market. He adds: “Sovereign balance sheets look much worse than those of corporates. Sovereigns are spending like fury, whereas corporates tend to be paying down debt.” He is prioritising equities over corporate bonds as a source of income. Where he is still holding fixed income, it tends to be in the strategic bond, high yield or emerging market debt areas.
Mr Becket has opted either for segregated mandates, where he has control over the cash flows and can therefore mitigate liquidity risks, and floating rate notes and asset backed securities, such as those used in the Neuberger Berman Floating Rate Investment Trust.
Corporate bonds no longer look attractive on an income or a capital preservation basis, with fund selectors finding opportunities elsewhere. That said, the market is unlikely to start to turn significantly downwards until there are widespread market expectations of a rise in interest rates. For the time being, with economic data still weak, that seems a long way off.
Cherry Reynard is a freelance journalist
BONDS IN NUMBERS
13% - The average increase of funds in the Sterling Corporate Bond sector in 2012
19.3% - The average increase of funds in the Sterling High Yield sector in 2012
3% - Yields on investment grade bond funds are under pressure
5% - Investors in high yield bond funds can expect this yield
