More incredibly, there is little knowledge about certain genres of this product amongst the high profile economic commentators. Such remarks may be controversial but are factual. Further still, the knowledge base of many market professionals (fund managers, advisors etc) is considerably below the standards that I feel comfortable with.
To ordinary folk, all these players sound very impressive – rather like politicians. Test their competencies and a rather different and unimpressive picture emerges.
Do not be fooled by believing that highly paid, high profile commentators are necessarily good at what they do – they are not, but there is no one out there with the confidence, competence or will to challenge them. Paradoxically, I am not complaining but rejoicing in this appalling environment of ignorance and why is this? The answer is simple: it creates opportunities, sweet spots, areas of exceptional value, market dislocations.
In this respect the fixed income market is just like any other. Think of it like a knowledgeable antiques dealer in a rural boot fair, spotting items of value which other dealers and opportunists have failed to identify.
Universal opinion
Current financial commentary is of the universal opinion that as a result of inflation, rising interest rates, peripheral eurozone issues etc. fixed income investment should be avoided or allocations decreased to be placed in other asset classes.
Equities and commodities seem to be the favoured alternative asset classes. I have taken a different view, certainly not contrarian, as I can logically reinforce my enthusiasm with track record performance as to why fixed income represents an outstanding opportunity. This is not only for locking in high coupon returns over a 5 to 10 year period, but also the potential for exceptional capital gains.
The value for money areas are various, particularly in sterling; definitely the discounted high coupon financial issues with call at par, 3 to 5 years out and with punitive high step-up coupons at call date. In US dollars, Upper Tier 2, discounted floating rate notes for issuers in commodity countries (e.g. Australia and Canada), and in Euros, curve steepeners (10 years vs 2 years) with minimum coupons.
There is no need to take undue credit risk in any of these areas. Alternatively seek a niche fund manager who has identified the market dislocations.
