InvestmentsNov 6 2015

Baillie Gifford raises its A game on bonds

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Baillie Gifford raises its A game on bonds

The manager of the Baillie Gifford Corporate Bond fund has positioned the fund defensively with approximately 20 per cent of the fund in A to AAA-rated bonds.

Torcail Stewart said there could be a lot of deflation being imported from China in the near future.

Mr Stewart said: “In the autumn, we started trimming exposure to many of the Chinese exporters.

“There will be quite a lot of deflation coming around from China. Many economists are speaking about the renminbi being overvalued by around 15 per cent, and you could see deflation coming around that will stave off a rate rise.

“We are looking for bonds where we think the balance sheet is improving going forward.”

The highest proportion of the fund – more than 40 per cent – is in BBB-rated credits with nearly 30 per cent in BB-rated bonds.

He said the £536m fund has had a preference for BBB bonds since its inception.

Over the past three years the fund has returned 16.6 per cent compared to its benchmark, the IA Strategic Bond sector, which returned 12 per cent.

Adviser view

Bob Wilson, director of Norfolk-based GreenSky Wealth, said: “We use the M&G corporate bond fund and they have adjusted the portfolio in a similar way.

“A lot of people are talking about China’s demographic base. They may be expecting slow growth to continue, so this may end up being a longer-term position.”