Fixed Income  

‘There is a greater awareness of duration risk’

‘There is a greater awareness of duration risk’

Bryn Jones, head of fixed income research at Rathbones Investment Management, said a growing number of advisers have concerns about the interest rate risk inherent to his type of investment.

In the latest FTAdviser video interview, Mr Jones revealed the type of concerns advisers raise about fixed income.

Mr Jones told Money Management’s Julia Faurschou: “Clearly there is a greater awareness of having too long a duration in your portfolio.

“When we talk to advisers and are out on the road they talk to us about what we are doing in our portfolios to protect investors from rising interest rates or high yields.

“The majority do [understand] but how much of the bond market is going to be impacted by high yields or what parts of it are going to be impacted, perhaps they may not understand so much about.

“Some of the things we have been doing is buying residential mortgage-backed securities that have a floating rate note. That means if interest rates rise you do not get the marked market loss in capital from the position.

“Also floating rate notes themselves issued by banks have a floating coupon they do not pay a great deal of yield compared with a fixed rate bond.

“You can also manage your duration as well so the recent sell off we have had in the gilt market we have had an underweight position. We have been keeping the duration quite short to avoid the big losses from a marked market perspective you might have from having a longer duration.”

emma.hughes@ft.com