They add: “With that in mind, we’ve increased credit quality in the income portfolios, while seeking ample liquidity to pursue resilience and flexibility in the face of an uncertain economic trajectory. These high-quality assets can provide compelling yields, with potential downside resilience and price appreciation should we slide into a recession.
"Our flexibility has already enabled us to take advantage of market dislocations in high-quality assets that have been caused by fear or sudden shifts in economic expectations.
"We expect volatility across the globe to continue into 2024, providing fertile ground for active managers."
One area they are finding attractive right now is in US mortgage bonds, where they feel the yields more than compensate for the extra risk involved relative to government bonds.
Brian Kloss, fixed income investor at Brandywise, disagrees. His view is, "with investment-grade bonds, one can get 7 to 8 per cent income, which is higher than the inflation rate”.
Matthew Rees, head of global bond strategies at L&G Investment Management, says in relation to high-yield bonds – that is, the highest risk end of the bond market – that the yields are now in the range of 400-450 basis points above those offered on government bonds, and he regards this as attractive because even if some of the high-yield bonds do default, the yields on offer are large enough to compensate.
He says that a feature of the high-yield market in recent years has been the migration of what he believes to be the best companies to that market, which he says now “means the US high-yield market is of higher quality than has been the case in the past”, which should mean default rates in this part of the market are lower than has historically been the case, while the current spread relative to government bonds does not, in his view, reflect this altered risk profile.
Peter Staelens, who runs the CVC Income and Growth investment trust believes that floating rate notes represent an opportunity, as they offer yields in line with interest rates, while it is possible to own some of these type of bonds which are not excessively risky.
David Thorpe is special projects editor at FT Adviser
