Download finding value in bonds. - The Institute of Financial Planning

LEGAL & GENERAL INVESTMENTS
FINDING VALUE IN BONDS.
Sean Gardner, Head of Third Party Sales
September 2012
There’s a good chance that you’ve
recommended a fixed income fund for
your clients’ portfolio this year. After all,
practically everyone has: statistics from
the IMA show that the fixed income sector
has been the top-selling for eight
consecutive months.
So far in 2012 it is the corporate bond sectors that
have seen the lion’s share of returns, however,
and fund flows have followed: the £ Corporate
Bond sector alone had £218 million of net retail
On another level, however, there is a lack of
liquidity. With investor attention so focused on a
relatively narrow spectrum of bonds, parts of the
market are over-crowded while other parts are
deserted. Buying and selling bonds in any great
quantities is difficult, but for reasonably-sized
funds with flexible mandates the problem is
manageable. To be successful in this environment
it helps to have a flexible approach that can
benefit from a broader investment universe.
THE IMPORTANCE OF FLEXIBILITY.
sales in July.
Even those who are bullish on bonds understand
These greater returns are due partly to growing
investor confidence that the euro zone debt crisis
will not spiral out of control, and partly to the need
to seek a more attractive income as the yield on
core sovereign bonds reached ultra low levels.
Ultimately, however, the asset price rallies we
have seen have one main root cause: liquidity.
AN ISSUE OF LIQUIDITY.
It’s interesting that liquidity is the hot topic in bond
markets both for its abundance and its scarcity.
The massive quantitative easing programmes in
the UK and US have been extended in recent
months, while the European Central Bank has now
outlined its intention to purchase bonds in bulk.
While these asset purchases are of course
that UK-focused managers face real problems
managing money in this environment. Many of the
best opportunities can be found further afield such
as in the euro or US dollar markets and,
increasingly, that’s where sterling bond managers
should be looking (the currency risk can easily be
hedged out). This provides better diversification
and also improved liquidity.
What is more, the ability to invest globally and
across currencies gives fund managers a broader
opportunity set. There are occasions when
attractive overseas bonds arise in sterlingdenominated bonds – America Movil issued one
recently – but to truly get access to the best
opportunities it helps to be able to look beyond
sterling.
TO FIND
MOREbonds,
0845 070
[email protected]
www.landginvestments.com
focused
onOUT
sovereign
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ensuing
waves of
investor euphoria are giving a boost to all asset
classes.
LEGAL & GENERAL INVESTMENTS
The Sterling Corporate Bond Index Fund is our
BACK TO BASICS.
The days of achieving easy double-digit returns
may be over, but in an environment where income
new passive way to invest in fixed income. This
fund focuses on the highest tiers of the sterling
Wasteis –scarce
a pile
of rubbish or a source of energy?market, those bonds rated AAA, AA or A. This
and the economic outlook remains
uncertain there is a lot to love about bonds.
November
2011
Fundamentally the attraction of bonds is down to
two factors: the regular income and the relative
conservative approach is suited to challenging
market conditions, and by excluding the BBB-rated
part of the universe we reduce overall default risk.
price stability compared to equities. These
continue to be true today.
Legal & General Investments
For bond managers, the philosophy of ‘avoiding
the losers’ seems a sensible one: prudence is the
September 2012 order of the day. As investors continue to flock to
the asset class, it is these funds, rather than those
who take on additional risk to chase yield, that will
probably have the most satisfied clients.
OUR EXPANDING RANGE OF CORPORATE
BOND FUNDS.
The Fixed Interest Trust is our most conservative
corporate bond fund. It's designed to provide
investors with a regular income and the potential
for long term capital growth by investing solely in
investment grade bonds. When combined with our
rigorous in-house research and active security
selection, this helps reduce default risk and
provides investors with a reliable source of
income.
The Managed Monthly Income Trust can
supplement its core of high quality investment
grade bonds with an allocation to higher yielding
bonds, when the fund manager believes market
conditions will reward such positioning. This
flexibility provides investors with a greater degree
of access to attractive investment opportunities
from across the world.
TO
TOFIND
FINDOUT
OUTMORE:
MORE:
T:
T:0845
0845070
0708684
8684
[email protected]
[email protected]
landginvestments.com
www.landginvestments.com/bri
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should not be relied upon by private investors or any other persons.
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guaranteed. Investors may get back less than they invest. Details of the specific and general risks
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