Global bonds still give the best investor returns 
(20/01/2009)
According to the latest research by Moneyspider.com, global bonds continue to dominate the best investor returns. The top ten income paying funds are drawn exclusively from the Investment Management Association’s (IMA) Global Bond sector.
The figures show that Scottish Widows’ Global Bond Plus is top of the tree, with an original £7k investment having increased by 58 per cent over the past 12 months (to 15/01/09) to £11,095, while M&G’s International Sovereign Bond fund has also enjoyed a sharp rise in the past 12 months, growing by over 46% and seeing an original £7k investment five years ago now valued at £10,278.
But investors are warned to do their homework before deciding on which bond fund to invest in. “M&G’s emerging markets bond fund also makes our top ten, but returns on this fund – at £8,659 on an original £7k investment over 12 months - are considerably lower than the investment manager’s top performer – although they are of course hailing from the same sector,” said Moneyspider.com’s Tony Ahearne.
So why are these Global Bond sector funds doing so well?
“Credit markets are currently offering investors an attractive investment opportunity with spreads over government bonds at unprecedented levels following the nosedive of equity-based funds,” said Ahearne.
“Investment grade spreads are at their widest since the 1930s and twice the level of the dot.com collapse of 2002, and high yield spreads are significantly greater, so all in all it is an excellent time to get into these funds. Many funds are now positioning themselves for Asian currencies to appreciate against the euro, the pound and the dollar, as Asian growth is likely to outperform developed market growth,” he added.
“The best fund managers are also now taking advantage of investment grade and sub investment grade credit. Spreads in emerging markets are wider than they were in the 1998 crisis but countries are not facing the same risk.
“It is beginning to look like we are coming through the worst of the financial crisis but are at the beginning phases of the economic slowdown. While volatility will continue for the next couple of quarters, this is something global bond managers will be able to capitalise on as they will be able to access distressed assets, for example. There are likely to be some exceptional bargains out there which bodes well in our view for continued out-performance in this currently top dog sector,” said Ahearne.
With UK interest rates at 314 year low, the big story for investors in today’s hard pressed climate, he continued, is how to maintain a realistic level of income.
“Income, income and more income – that is certainly the Holy Grail for older investors in today’s climate which means that most deposit accounts now produce negative after tax returns when taking inflation into account.
“As returns from ordinary savings products are slashed to next to nothing, our view is that 2009 will see a major drift towards lower risk bonds funds; anywhere that money is actually making money has to be attractive,” he added. “Investors will be able to draw their own conclusions, but it is apparent that comparing the top performing funds in their sector with the lowest rated shows the vital necessity for regular performance reviews.”
Moneyspider.com has no registration fee and the service not only rates the performance of each of the client’s own funds but also shows a comparison with the top five funds in the same sectors. It also shows the top-performing funds from all sectors, so Moneyspider.com investors can see where the real profits have been.
“Keeping a close eye on your fund’s performance is crucial in these uncertain times - in rapidly changing market conditions, as we are currently experiencing, knowing how a specific fund in which you are invested is performing and – equally important – how other funds compare, is simply good financial common sense,” said Ahearne.
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