Talking PointFeb 21 2023

Short-duration bonds most popular with financial advisers

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Short-duration bonds most popular with financial advisers
(Tolga Akmen/EPA-EFE/Shutterstock via Fotoware)
ByIma Jackson-Obot

Short-duration bonds are the most popular type of fixed income asset among financial advisers, according to the latest FTAdviser poll for Talking Point.

When asked, which of the following fixed income assets are you more likely to increase your allocation to over the next six to 12 months, more than a quarter (26.2 per cent) of advisers said, short-duration bonds.

The second most popular of the fixed income assets was strategic bond funds with 23.8 per cent of advisers looking to increase their allocation in this type of bond.

The least popular were investment-grade bonds and emerging market debt ( both 9.5 per cent).

Philip Dragoumis, director and owner at Thera Wealth Management, said the firm's approach to fixed income depended on the client, their investment term, objectives and their risk tolerance.

He added: "We believe in duration matching so clients who are happy with some volatility and are investing long-term in their pensions can be certain of the yields they can achieve and that returns can at least match or beat inflation.

"Gilts with 10 years duration and global inflation linked bonds help guarantee these returns even though short term as last year has shown the ride can be bumpy. They also protect our portfolios through recessions.

"For risk averse clients, short term bonds below five years are best, but they do have reinvestment risk as interest rates fall. We don't believe in high yield or EM Debt. If the correlations are high with equities why not just take equity risk instead, since there is no cap to the upside?"

In a recent study by Nataxis, the investment manager found that while professional fund selectors see inflation as a key portfolio risk, they also see a potential opportunity in the interest rate hikes that come with it. 

Three-quarters believe that rising interest rates will usher in a resurgence in traditional fixed-income, with 51 per cent saying they will increase investments in government bonds, and another 46 per cent reporting they will increase allocations to investment-grade corporates.