Fixed income assets have remained in strong demand, due to the search for yield, which has been pushing investors into the higher risk areas of the market. Many areas, such as high yield and emerging market debt, have proven to be successful areas in which to invest.
The past few years have seen disappointing returns from most fixed income sectors, while equities have flourished. Data from the Investment Management Association (IMA) shows fixed income funds - which were the best selling in 2012 - saw their first ever net annual retail outflow of £17m in 2013. Its equity counterpart meanwhile saw inflows of £11.4bn - the highest since 2000.
According to the most recent figures from the IMA, the Sterling Strategic Bond sector was the fifth best-selling for February 2014 with net retail sales of £229m, the highest since April 2012 when it saw inflows of £249m.
However, the fixed income asset class in general - which includes all other bond sectors - saw lower net retail sales of £179m, still the best figures since May 2013, which was partly due to outflows in the Sterling Corporate Bond, Global Emerging Markets Bond, UK Gilts and UK Index Linked Gilts sectors.
It is safe to say that 2013 was not the best year for fixed income, while equities went from strength to strength. Globally, the past 12 months has seen numerous events that have not helped the fixed income story. The Bank of England welcomed its new governor, former Bank of Canada governor Mark Carney, at the start of July last year and he did not take long before making a splash. In his first inflation report, published in August, he showed a US-style ‘forward guidance’ on the future of the UK’s interest rates. He said rates would remain low until unemployment falls to 7 per cent or below. It currently stands at 7.5 per cent. While the Bank predicts it will not happen until 2016, many are forecasting it to happen sooner.
Across the pond
On the other side of the Atlantic, the story of the summer was from the US Federal Reserve, which took months to announce it was to scale back its quantitative easing programme from $85bn. It said it would start in January by reducing its monthly asset purchases by $10bn a month, evenly split between Treasuries and mortgage-backed securities. In the meantime, Janet Yellen took over from Ben Bernanke as the first female chair of the central bank.
