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Corporate bonds have lost their lustre, says income manager

Schroders equity income co-fund manager Nick Purves says corporate bonds are less attractive than they were earlier this year.

At a UK specialist equity and value round table discussion last week, Purves said a drop in yields and increased risk appetite had reduced their attraction.

He said: “Generally, we do not think they are as attractive. What we are trying to do is buy corporate bond-type risk offering equity-type returns, so double-digit returns.

“At the beginning of the year, you were able to do that. I think it is fair to say that option is no longer available, given that risk appetite has increased quite a lot and an enormous amount of money has gone into corporate bond funds and that has pushed yields down across the board.”

Schroders equity income fund, co-managed by Purves and Ian Lance, is just over £1bn. It can hold up to 20 per cent in non-UK equities but currently has 15 per cent with 10 per cent in overseas equities and almost 5 per cent in corporate bonds.

It bought a Lloyds bank bond issued in March to boost income and potential capital opportunities.

M&G corporate bond fund manager Richard Woolnough says: “Although credit no longer represents the once in a life-time opportunity it did earlier this year, the asset class still looks relatively cheap and investment-grade bonds still represent good value.”

Bestinvest senior investment adviser Adrian Lowcock says: “They probably represent fair value at the moment. If you have got corporate bonds, you would stay in them as you are still getting paid a good yield.

“You might want to take a little bit of profit out but the trouble is where would you put the money because equities look relatively expensive in the short term.”


Shared access

Mansfield Building Society’s launch of a 100 per cent mortgage in a shared-ownership deal has thrown a spotlight on shared-equity schemes, which can be difficult to access for first-time buyers due to lenders’ restrictions.


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