Investor nerves boosts fixed income investments

Investor nerves boosts fixed income investments

Fixed income funds proved popular in January, as investors favoured a cautious approach to their financial portfolios.

According to the latest data from FundsNetwork, strategic bonds, global bonds and high yield bonds were among the most popular investment options last month.

However, despite this overall trend, the UK equities-driven Fundsmith Equity Fund ranked as the top-selling adviser fund for January, and the bestselling Isa fund.

The top-selling fixed income fund for the month was the Baillie Gifford Corporate Bond, which was the third most-popular fund among advisers, and the seventh most popular for Isas.

Meanwhile, the Invesco Global Targeted Income Fund was the top-selling fund among pension investments.  

Fidelity International, which owns the FundsNetwork platform, speculated that the popularity of fixed income funds may be evidence that investors were feeling nervous about the prevailing macro-economic and geo-political conditions at the start of the year.

“With the inauguration of Trump that took place in January having the potential to unsettle markets throughout the month, we perhaps unsurprisingly saw many investors seek to either diversify their portfolio through geographical or asset class diversification or seek the safety of fixed income,” said Danny Wynn, head of fund partners for Fidelity International.

“This was evidenced by the popularity of the Fundsmith Equity Fund and the Invesco Global Targeted Income fund as well as the demand we saw for the various fixed income sectors. 

“So far markets have taken a Trump presidency in their strides. However, as President Trump’s incumbency goes on and with the triggering of Article 50 clearly on the horizon, we could see sentiment becoming increasingly unsettled resulting in increased demand for defensive assets that offer a port in the storm.” 

Drewberry Wealth Management’s pension and investment specialist Neil Adams invests in the Fundsmith fund, and he suggested that its long-term steady performance is the reason why it is at the top of the charge.  

“It’s been running for around five years and if you look at its track record, it has outperformed the market over this time period,” said Mr. Adams.

“There was a little blip over the past few months but that’s just something that happens over the long term. 

“When we look at funds for our clients, it’s more on the basis of the prospect of that fund doing well over the longer term and we tend to ignore the short term blips to a certain extent.”

At the end of January, the Fundsmith Equity Fund returned 0.7 per cent, compared to an average of 0.6 per cent on the equities market and -0.9 per cent on UK bonds. Since inception, it has delivered annualised returns of 19.1 per cent.

Mr. Adams added that he would encourage his clients to weather out any short-term volatility by focusing on long-term investments, but admitted that there had been some concern among his clients over events such as Brexit.