Where next for bond investing?
With current low interest rates in much of the developed world, the risks to bond investors are increasing.
The recovery, supported by fiscal stimulus from governments and quantitative easing from central banks, creates a wide range of possible outcomes. Could we finally see the return of inflation or will further lockdowns push the UK into negative interest rates and the US to cut rates even further?
Increasingly, investing in bonds has become more challenging in a low-yield environment and the risk of being in the wrong place at the wrong time is growing. This is where strategic and global bonds come into play.
The launch of the Axa Global Strategic Bond fund is an interesting proposition. Indeed, the fund’s presentation does seem to recognise the challenge facing bond investors today.
The fund takes an unconstrained approach with flexibility. The global mandate gives the manager, Nick Hayes, a larger universe to invest in which means the ability to choose from different yield regions as well as accessing some riskier areas such as emerging market debt.
The fund takes a ‘buckets’ approach to risk and splits this three ways: the defensive bucket invests primarily in developed market government bonds and linkers; the intermediate bucket covers investment grade bonds and some periphery government debt; while the aggressive bucket invests in the high-yield market and emerging market debt.
Each bucket has different characteristics, opportunities and interest rate sensitivities.
These bucket sizes are managed according to Mr Hayes’s views of the market, risks and opportunities, while the duration of individual bonds will be held between zero and eight years. The fund will not go negative duration as it is not an absolute return strategy.
The process is clear with a simple and transparent investment framework. This could be a good option for people looking for a way to maintain their exposure to bonds.
Adrian Lowcock is head of personal investing at Willis Owen