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Fixed Income Strategies - March 2014



    But bonds have suffered their own problems in recent months. Fears of an overheating market and the creation of a bond bubble have meant that many have been talking about a rotation back into equities.

    While many agree that a 30-year rally in the bond markets may be over there are still big questions over where people should be invested.

    Convention suggests that government bonds are a good place to go during tough economic times, whereas high-yield bonds are good for economic recovery; the former due to their safety and the latter because of the improving economic prospects for the slightly distressed stocks picking up momentum.

    But gilts have seen depressed yields for the last year, prompting some to predict that the bear market in gilts has begun.

    Some investors aim to cater for unpredictable markets by allocating to different types of bond funds - focusing on core investment grade holdings for high quality stocks, and then branching out into specialist funds depending on their risk appetite.

    Other options include investing in strategic bond funds, where managers can take active decisions to hedge one product with another, to get the best out of the markets.

    High yield bonds have shown a strong performance for the past two years, but fund managers believe there is still strong performance left in this asset class, with some predicting it will outperform all other fixed income assets.

    As equities have been volatile, so fixed income has been useful for investors looking to diversify. They are set to remain useful for the time being.

    Melanie Tringham is features editor of Financial Adviser

    This special report is sponsored by Aberdeen Asset Management.

    Click here for a brochure on ‘re-thinking fixed income’.

    Click here for information on a global approach to bond funds.

    All editorial is independent.

    In this special report


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    1. In what have many strategic bond managers been investing as a result of IMA sector flexibility, according to Mr Roberts?

    2. What is the difference in global bond returns over a single year in the global bond markets, according to Mr Roberts?

    3. What level did Mr Davidson forecast 10-year government yield would reach in 2014, which now “looks some way off”?

    4. To what does Mr Davidson say the phrase “don’t follow the money” should be changed?

    5. Rating agency Moody’s reported the trailing 12-month high-yield default rate fell to what in January?

    6. High-yield bonds in emerging markets now provide a pick-up in yield of what over high-yield credit in the US?

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