Absolute returns can be a solution

Sam Liddle

Sam Liddle

FRNs have four main attributes; they are free so keep costs low at a time of low returns from other asset classes; they keep portfolio volatility low at a time when other asset prices become increasingly volatile; the coupons re-set quarterly so they provide a free hedge against rising interest rates; and they are completely liquid so can be redeemed when attractive valuation opportunities become available in other asset classes.

Most new issuance is referenced against Sonia (Sterling Overnight Index Average) which is currently 0.7 per cent, and coupons of 1.4 per cent are quite typical. All right, it is not exciting but it is an absolute return which in 2018 proved elusive in other assets.

Sam Liddle is a director at Church House Investment Management