For diversification, Gareth Isaac, fixed income fund manager at Schroders, says most investors should have a mixture of bonds and stocks in their portfolio.
However, the more conservative your goals are as an investor, the higher the proportion of bonds in your portfolio should be, he adds. On the other hand, the more risk you are willing to take, the higher the percentage of stocks.
“Typically an investors’ allocation to bond funds increases as he or she gets older, while the allocation to stocks decreases.”
Annemarieke Christian, product specialist at Legg Mason, says a regular stream of income might suit an investor who has to meet regular payments or is looking to supplement their regular income.
Bond funds are also an attractive diversifier in a broader investment portfolio, so might suit investors who are looking to spread their investments over a wide range of assets to offset those that are performing poorly with stronger performers, potentially giving them a more stable rate of return.
Ms Christian says: “Mixing bonds and equities into your portfolio could help reduce volatility.”
In terms of cost, Schroders’ Mr Isaac states bond fund fees can range from 0.10 per cent to 1 per cent a year.
In order to get the right deal, Alex Robertson, client portfolio manager of Royal London Asset Management, says it is vital that investors seek professional advice regarding the suitability of specific funds relative to their own circumstances.
Ms Christian said single sector bond funds range in riskiness from comparatively conservative government bond funds to higher-risk high yield funds.
‘Strategic’ bonds funds invest in an array of bond market sectors with the aim of providing attractive returns while at the same time dampening volatility, she adds.
“Investors can also choose to invest in a global bond fund that may provide the potential to take advantage of investments in other currencies than sterling.”
