Finding the value
In terms of how best to access the value in fixed income markets right now, Dan Boardman-Weston, chief investment officer at BRI Wealth Management, is another that is cautious about taking substantial bets on duration in the current climate.
Instead, the managers are maintaining a position that is around neutral – that is, in line with market expectations on duration.
One substantial change he has made with regard to how he thinks about allocating to bonds is a general move away allocating to strategic bond funds.
He feels an allocation that is 50 per cent in high yield and 50 per cent in investment grade achieves the same outcome as a strategic bond fund, particularly when held alongside gilts, the latter of which he accesses via passive funds.
Right now he believes there is value in high yield.
He says: "The valuations in investment grade are a bit rich though. The advantage of high yield in the current climate is that its quite a short duration asset class, and that is where we want to be in the current climate”.
A short duration asset class is one that is less sensitive to interest rate movements.
Additionally, by having a relatively shorter date to maturity, the investor may have greater certainty about being repaid, as fewer things can change over a shorter period of time.
Chris Metcalfe, chief investment officer at wealth management firm Iboss, addresses the issue of duration by having exposure to different types of fixed income funds, with some short duration and some long duration.
He says: “We have five fixed income funds we allocate to, and by having that many, we can choose quite high octane fixed income funds in each area to generate returns.
"The key thing is, we allocate to managers that have good long-term track records, and we would never claim to know better than them on something like duration.”
Outlook for the US
When it comes to government bonds, Andrea Cicione, head of research at TS Lombard, is cautious on the outlook for US government bonds, as he feels the potential exists following the presidential election for higher inflation as a result of higher budget deficits and potentially protectionism.
If rates stay higher for longer, US government bond prices would fall.
Arif Husain, head of global fixed income at T Rowe Price, is another market participant that feels US government bond prices could fall.
He says: “Market consensus expects the yield on the 10‑year US treasury note to decrease with the Federal Reserve kicking off a rate-cutting cycle.
