Moneyspider in the News

Corporate bonds plummet

Pensions Management

Thousands of private investors are being stung by dreadful returns on so called "low risk" corporate bonds from big name providers as they lag far behind the supposedly far riskier UK All Companies sector, which has performed very well over the last few years.

Moneyspider.com analysis found that turmoil in the global corporate bond market is ruining investors, and that values are set to plummet further. Virgin Money, HSBC and Nationwide are among the worst performers in the sector.

A £5,000 investment in Virgin Money's Income fund would have gained just £600 in the five years from May 2002 to May 2007.

Investors in HSBC's Corporate Bond would have done little better, scraping a profit of £843 on £5,000 over the same period. Investors in Nationwide have been similarly disappointed with a paltry £849 gain.

The global corporate bond market is the second most popular ISA sector according to Investment Management Association (IMA) data. ISA holders that chose to invest in equities would have fared better though.

The UK All Companies sector accounts for nearly a third of all ISAs according to IMA, and the Old Mutual 's UK Select Mid Cap fund showed a profit over five years of £9,357 on a £5,000 investment, a 187% increase.

Moneyspider.com's managing director, Bill Ross, said of the search: "Risk adverse investors have traditionally stayed away from the equity market, but the solid performance of the UK All Companies fund suggests the concept of corporate bonds as being low risk is misguided."

He continued: "Corporate bonds are often sold to low risk investors, who are invariably under the impression that they can enjoy higher income than they could get in a standard saving account, plus some capital growth."

"The problem is the ordinary investor has caught a bad cold by assuming - not unnaturally - that putting savings in corporate bonds would achieve a higher return than in the bank."

James Davies, investment research manager at Chartwell, said it was unfair to compare bonds to equities as there has been an impressive bull run on equities over the last four years.

However, he added that corporate bonds had gone through 'a torrid time over the past 12 months with low yields,' and said Chartwell was not advising its clients to go into corporate bonds