One of the largest advice firms in the UK is shifting its clients’ cash towards fixed income as the outlook for bonds continues to improve.
Quilter Cheviot, the discretionary fund management arm of the advice network Quilter, told FTAdviser it had been “steadily increasing” its allocation to fixed income across client portfolios, despite the ongoing risk of persistent inflation.
“We expect economies to gradually slow in the months ahead due to the lagged effect of central bank rate hikes,” said Richard Carter, head of fixed interest research at the company.
“In the UK, we are already seeing a pronounced slowdown in the housing market while Eurozone data has also been weak. If this means that central banks are close to the peak in rates, then the outlook for bonds should improve.”
Since the financial crisis in 2008, fixed income had been unloved, according to commentators.
There was more than a decade of historically low interest rates, and the yields paid on bonds were simply not high enough to entice investors.
At the end of last year, however, bond yields headed skyward. US and UK government bonds are now yielding above 4 per cent, higher quality investment grade bonds are yielding between 6 and 7 per cent and riskier bonds are offering in excess of 8 per cent.
The changing backdrop has seen fixed income back in favour. According to Morningstar, it was the only asset class to have positive inflows in June and July, with investors pumping more than £1.5bn into fixed income funds.
Darius McDermott, from the fund researcher FundCalibre, said: “It’s perhaps no wonder bonds are suddenly popular again.
“When it comes to fixed income, you are looking for a decent yield and potential for capital returns. Since the global financial crisis, the yield has been too low. That has now all changed.
“Yields have gone up quickly as interest rates have risen and today, bonds are paying very good yields.”
McDermott pointed to the Artemis Corporate Bond fund, the Nomura Global Dynamic Bond fund and the Invesco Tactical Bond fund as good picks in this sector.
Other advisers were less bullish about the outlook for bonds for certain clients.
Felix Milton, a director at Philip J Milton and Company, said that while fixed income investments were looking more attractive than they had in several years, most of his clients were long-term investors that were more suited to equities.
“Most of our clients are in for the long term, and equities is still the place to be for a long time frame, ignoring the shorter-term market noise,” said Milton. “The allocation for our lower risk clients to bonds has increased, as this provides them with a good consistent yield with lower risk.”
Imogen Tew is a freelance financial journalist
