Moneyspider in the News

Falling from grace

Investment Adviser

It is difficult to think of a worst climate for bond funds than what is currently being experienced. Interest rates in the UK, Europe and the US have risen and, as the doom and gloom merchants will say, look set to continue that upward trend as banks try to get inflation under control.

As a result, bonds are looking less attractive as yields become devalued and bond fund managers are finding it increasingly difficult to generate the sort of returns that their investors expect.

On the back of this, every week seems to be a new statistic or fact calling into question the integrity or worth of corporate bond funds, which were once the darling of the investment industry. Last month there was a sell off of the bonds market. The IMA revealed that more money was put into them during the first quarter of this year. And it was also shown that only 8 funds out of 95 in the UK Corporate sector managed to produce positive returns over 2006.

On top of that, a new report by Moneyspider.com showed that investors would have been better opting for equity funds within the UK All Companies sector and shouldering the perceived extra risk, as these funds have performed significantly better.

Managing director of Moneyspider.com Bill Ross also remained doubtful that corporate fund managers could reverse the fortunes of their funds through embracing a change of style and opting for different categories of higher yielding bonds. "We now have a scenario where corporate bond managers are increasingly turning to riskier sub-investment grade or 'junk' bonds to get profit, yet even these are barely producing 2 per cent a year income, compared to around 8 per cent back in 2003," he said.