Press Release

PRESS RELEASE

12 June 2007

THOUSANDS OF INVESTORS SUFFER IN AILING CORPORATE BOND FUNDS AS BUBBLE BURSTS - VIRGIN MONEY, HSBC AND NATIONWIDE AMONG THE WORST PERFORMERS

-          'low risk' investors hit by dreadful returns from big name providers

-          UK All Companies massively outperforming corporate bond sector

-          Moneyspider.com analysis shows 'risky equities' dramatically outperform 'low risk' bonds

TURMOIL in the global corporate bond (CB) market is set to have a ruinous knock on effect for thousands of private investors, as values are forecast to plummet even further.

As rising interest rates have propelled bond managers both in the US and the UK to a frenzy of sell off activity, new data by fund analyst Moneyspider.com reveals that investors in the second most popular Isa sector (Investment Management Association (IMA) data, April 07) have been hit badly - and are lagging massively behind the supposedly much riskier UK All Companies sector.

A £5000 investment in bottom of the pile performer Virgin Money's Income fund, for example, would have produced a gain of just £600 in the five years from May 2002 - May 2007.

And investors in HSBC's Corporate Bond - another rock bottom fund with £559m invested - would have done little better, scraping a profit of £843 on £5,000 over the same period.

Investors in the UK's biggest building society, Nationwide, have been similarly disappointed, with a paltry £849 gain over half a decade.

All three funds score the lowest - E - rating on Moneyspider.com's unique rating system, which compares performance over crucial one, three and five year periods and delivers analysis on the overall performance of the fund over the typical five year investment period (see Editor's notes for full details).

Yet investors in the ostensibly more volatile and higher risk UK All Companies sector (accounting for nearly a third of all UK Isas, IMA April 07) have fared much, much better.

As the Moneyspider.com table (below) shows, investors with £5,000 in Old Mutual's UK Select Mid Cap fund - which gets a Moneyspider.com A rating, showed a profit over five years of £9,357 - a 187 per cent increase - over the same period as the supposedly low risk corporate bonds.

Even putting the same amount in Halifax's Web Saver account (£1,188.54 gross, £950.83 net) over an identical period would have comfortably outperformed Virgin, Nationwide and many other CBs.

"The fact that the base rate has been so historically low over the past five or so years has given fund marketers ample opportunity to push corporate bonds as providing an opportunity to maximise income - but as our data shows, investors need to tread very warily if they are not to lose even more money, especially when inflation is taken into account," said Moneyspider.com's managing director Bill Ross.

"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 savings account, plus some capital growth.

"The problem is that the ordinary, Joe Average investor has caught a very, bad cold by assuming - not unnaturally - that putting savings into Corporate Bonds would achieve a higher return than keeping them into the bank.

"Bearing in mind that this is the second biggest ISA sector, boasting hundreds of thousands of investors, there is likely to be a great deal more loss to come," added Ross.

Corporate Bonds are basically IOUs issued by companies. Investors effectively lend them money - and they pay 'interest'. How much depends on the risk of the Bond the investor is buying, which in turn depends on the health of the company issuing it. Typically Bond prices rise when interest rates are falling - and fall when, as now, interest rates are rising.

"We now have a scenario where CB managers are increasingly turning to riskier sub-investment grade or 'junk' bonds - yet even these are barely producing 2 per cent a year income, compared to around 8 per cent back in 2003," said Ross.

"Risk adverse investors have traditionally stayed away from the equity market, but the solid performance of the UK All Companies fund suggests that the concept of Corporate Bonds as being low risk is misguided."

Source: Moneyspider / Financial Express 25.05.07.

Ends

Editor's notes

Moneyspider was launched in April 2004 and is a totally independent investment research and information company for private investors. Moneyspider constantly monitors all 2,000 or so funds available to UK investors and provides online personal reports that are updated on a daily basis showing current valuation and performance of all funds in one place.

The Moneyspider Rating® provides a unique assessment of the performance of each fund measured against four key parameters:

• Sector ranking: a comparison with all other funds in the same sector as your fund (based on the sector definitions used by the Investment Management Association).
  
• All funds ranking: a comparison with all other 2000 or so Unit Trusts and Open Ended Investment Company funds available to UK investors.
  
• FTSE 100: a comparison of the total return of the fund with the total return of the FTSE 100 index (comprising the UK's 100 largest companies), providing a consistent benchmark for each fund.
  
• Cash: a comparison of the fund's performance with the return from an equivalent amount deposited in a 90 day non-high interest access account.

Moneyspider is an appointed representative of Anthony, Bryant & Company (Investment Consultants) Limited of 25 Eccleston Square, London SW1V 1NS, which is authorised and regulated by the Financial Services Authority. The contents of this press release are not intended, and should not be construed as, advice, a recommendation or as an inducement to buy or sell any investment. Moneyspider relies on information regarding investments that is provided by third parties and accepts no liability (including that arising from negligence) for the accuracy of such information.