T Bailey has warned that corporate bonds could face potential liquidity problems following news that the sector saw only £11.8m in inflows in October.
Until September, the corporate bond sector ranked first for fund retail sales for 10 consecutive months, according to statistics issued by the Investment Management Association.
T Bailey chief investment officer Jason Britton believes that the latest figures could signal the start of a mass exodus from the sector.
He says: “There is a risk that this is the start of a stampede to the exit door and we could find lots of people jammed there. We saw this problem with commercial property in 2008 and we could see similar liquidity issues with corporate bonds in 2010.
“The case for corporate bonds is no longer compelling. Arguably, companies have now sorted out their refinancing so the money in this market is chasing lower-grade bonds. It is time to grab your coat and quietly head to the exit.”
However, Fidelity says that the corporate bond sector was a clear favourite for advised clients in October and demand remains strong.
Head of UK retail sales Peter Hicks says: “Our moneybuilder income fund was in positive net sales in October and November. There is definitely still demand for corporate bonds but sales are fairly concentrated into a small number of funds and people are becoming very discerning.
“I do not think you would have the liquidity problems in investment grade that you had in property. For a start, property is not readily tradeable whereas bonds are readily tradeable liquid assets.”
Whitechurch Securities managing director Gavin Haynes says the firm has scaled back its exposure to corporate bonds but says: “There is still money going in and I do not think there will be a mass exodus. Relative to gilts, they are still attractive.”