He says with liquidity at a premium he is reluctant to choose a strategic bond fund that may be invested in niche products that are difficult to sell.
Stuart Edwards, a bond fund manager at Invesco says the current crisis will lead to sharp divergence in the bond market between those companies which can pay and those which cannot, and with many idiosyncratic bonds likely to perform well relative to better known products.
Paying the coupon
David Roberts, head of the global fixed income team at Liontrust says that away from government bonds, the outlook for income from bonds has improved in recent weeks, because the prices have fallen.
He says: “For those moving into the decumulation stage, there is good news.
"The vast majority of bonds will continue to pay their coupon, generating income for investors without the need to sacrifice capital.
"Although most companies can choose whether to pay dividends or not, almost all are legally required to pay coupons on their bonds – strictly speaking, if they don’t, they are in default and bond investors can often end up owning the company at the expense of shareholders.
"That level of bond income is also materially greater than it was a few weeks ago. If you are selling equities into bonds either to de-risk or generate income (as companies slash dividends), you might not raise as much money today as three months ago but each pound you put into corporate or high yield bonds can 'buy' more income than it did in January.”
Alex Pelteshki, bond fund manager at Kames says at present he regards the prices of Investment Grade corporate bonds are fair for the income received, while he regards high yield bonds as cheap in the current climate.
Stephen Snowden, bond fund manager at Artemis, says that with government bond yields low, and the dividends paid by equities being cut, the importance of the income generated from corporate bonds is likely to rise in the years to come.
He says: “They are of growing significance to investors with an income requirement. Base rates have fallen from 0.75 per cent at the start of the year to 0.1 per cent today.
"Some estimates have dividend payments in Europe being cut in half in 2020 before recovering next year. The inflation backdrop is low and going lower.
"The pandemic will probably accelerate deflationary trends that were already in play, such as the greater use of technology.
"Corporate bond and high yield bond funds have higher yields now, post the blow-out in credit spreads. Bond funds have more relevance today than they have done for many years.”
