3 min read 10 May 23
Against a backdrop of rising interest rates and inflation which remains relatively high, the returns available on bonds and other fixed income investments could in our opinion be more attractive than ever… if you can count on the expertise of specialists.
What investment strategy should investors prioritise in the current fragile economic climate? While investors have to some extent shunned fixed income investments, such as bonds, in recent years, these assets are now a solid option at the heart of a well-balanced investment strategy. “A major advantage of sovereign bonds and corporate bonds is that they offer a predetermined yield, which constitutes a contractual obligation, explains Stefan Isaacs, Head of Wholesale Fixed Income at M&G Investments, one of the Europe’s leading players in fixed income management. For example, if a bond promises a yield of 5% per annum, this rate is guaranteed if the bond is held until maturity, assuming no defaults. The investors can therefore accurately account for the income they can expect, which is rather reassuring.”
Over and above this first advantage, the bond market is also far broader than the equity market. “It comprises European government bonds as well as emerging-market bonds, for example African issuers. Issuers include not only well-established multinationals but also small companies. The range of possibilities is very extensive”, adds Stefan Isaacs. In addition to the range of issues available, the bond universe also benefits from the current economic conditions, characterised by the rise in key interest rates decided by central banks. “Up until around 18 months ago, bond yields were not great and these products were therefore less attractive. But recently, yields have averaged between 4 and 8%, which means that they are starting to look interesting”, according to the M&G Investments expert.
Obviously, there is no guarantee that the current conditions will last. If inflation declines and interest rates fall, the entry point into bond funds may again be relatively less attractive for investors. “In such cases, we often see bond prices increase to offset the fall in interest rates. All in all, investors that have invested in a bond fund may benefit from this”, emphasises Stefan Isaacs. Moreover, these assets are very liquid: they can be bought and sold rapidly because the secondary market is also very broad. “An investor can enter and exit one of our funds within three days. Of course, this possibility may have a cost, but it offers significant flexibility to investors.”
However, the aim of M&G Investments is to select its bonds carefully so as to offer investors a secure long-term return. “To that end, we carry out a fundamental analysis in-house, relying on our teams based in London, as well as in Chicago, Singapore and South Africa. Our experts are specialised by industry and have more than 15 years of experience. They have direct contacts with the companies that issue these bonds, notes Stefan Isaacs. We combine the results of the analyses carried out by these experts with a more macro vision. The idea is to avoid investing in industries whose activity is cyclical.”
Building on this expertise and a favourable outlook, M&G Investments firmly believes in the future of bond funds, as a particularly interesting option as part of a diversified investment strategy.
The value of the fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested. The views expressed in this document should not be taken as a recommendation, advice or forecast. We are unable to give financial advice. If you are unsure about the suitability of your investment, speak to your financial adviser.
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