Cast your mind back to 2009 and sales of corporate bonds went through the roof as investors scrambled to join in on the post credit-crisis rally. In a time of unprecedented insecurity came a message of certainty – invest now in this once-in-a-lifetime opportunity for growth.
We in the financial press are as guilty as any in being a platform for these views, but then we write stories for a living, right? The danger comes when the mass of retail investors cotton on to an investment idea that has already run its course, which is unfortunately far too common in this industry.
A glance at the latest IMA fund sales stats tells us that fixed income has come back into favour in recent months, and in a big way. Q1 this year represented the best quarter for fixed income funds since Q3 2010 – bonds have been the leading asset class for seven consecutive months with net retail sales of £660m in March. Strategic and corporate bonds have led the way.
Better opportunities
John Husselbee, chief executive at North Investment Partners, is one fund picker who was surprised by the IMA’s figures, believing that investors would have been better off keeping their money in cash or short-dated bonds, and waiting for better buying opportunities in other credit types.
“With the start of this year the thirst for credit was quite explosive, but by February you probably had half or even most of the return you are going to get from corporate bonds,” he remarks.
“By the way that spreads have narrowed there has to be a pause for breath, and we have seen that. I think that perhaps those buying in the past couple of months have been buying things which are at the upper end of price. That is what has surprised me from those numbers, that there are people prepared still to buy bonds at any price.”
Defining characteristics
But what is behind this thirst for credit? Low cash rates and volatile equity markets are valid reasons to look to fixed income, but then these have been defining characteristics of the investment landscape for several years now.
The cause of investor angst can be blamed on anything from the eurozone crisis, through to commodity price movements or political uncertainty in the East. These are all very valid reasons to worry, but maybe it also comes down to a lack of narrative; a lack of conviction on where to invest.
As Husselbee puts it: “We’ve had a trendless market and therefore people are looking for certainty; the one thing that provides certainty is income.”
