“Then we had QE and GBP investment-grade dispersion came in and started to trade at the average level. But we are starting to see post QE an increase in dispersion across companies again. The world of volatility will lead to a bigger discrimination between strong and weak companies.”
M&G Corporate Bond fund manager Richard Woolnough says credit valuations can differ quite dramatically between sectors such as real estate and financials, where spreads remain quite wide, and other sectors such as healthcare and capital goods, where spreads are significantly tighter.
Woolnough says: “As a result, top-down asset allocation will remain important, but it is likely that bottom-up security selection will also have an important role to play. We believe that a global, flexible and selective approach will therefore be key to unlocking returns.”
Corporate bonds are very much back on the agenda. Yes, there are still some risks, but you are being rewarded handsomely for taking them.
Other funds to choose from:
Royal London Corporate Bond
The managers of this fund delve into parts of the fixed income market where others fear to tread and identify bonds that offer superior risk-adjusted returns. The process is risk-aware and concentrates on avoiding losers rather than picking big winners. The fund is well-diversified with around 200 names.
TwentyFour Corporate Bond
This fund looks to achieve the highest possible income with the least amount of volatility. To find his holdings, manager Chris Bowie uses a bespoke quant research tool: Observatory System, which is designed to seek out the best risk-adjusted opportunities.
The fund will only hold a maximum of 100 stocks at any one time, so that Bowie can let the benefits of good stock selection shine through.
Darius McDermott is managing director of Chelsea Financial Services and FundCalibre
