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Corporate curve

The return of risk appetite has been very noticeable in the corporate bond space since the dark days of late 2008 when spreads blew out to unprecedented levels in the wake of the Lehman failure.

Since early 2009, however, as policy actions have filtered through, the asset class has been a favoured home for inves-tors and has attracted steady flows, hitting in excess of £1bn a month earlier in the year. It is easy in hindsight to say that value existed as prices inferred default rates in excess of 1930s depression levels but finding the right managers to take advantage of these value opportunities was the great challenge for advisers.

A quick study of the IMA corporate bond and strategic bond sectors for the first half of 2009 alone returns a remarkable divergence of returns, with the top fund delivering over 31 per cent and the bottom fund suffering a loss of -14.4 per cent. Indeed, stripping out the corporate sector to focus on purely investment-grade funds, the spread is equally confusing for such a short period of time, ranging from +11 per cent to -14.4 per cent. This highlights that while the apparent yields available in the corporate bond space were highly attractive, this was not without risk, whether this is asymmetric default risk or interest rate risk.

Unquestionably, the greater proportion of investor funds found their way to the heavyweights in the sector, M&G and Invesco Perpetual, but for those willing to do a little extra homework, there are many other top quality funds available.

The IMA recognised the need to differentiate the asset class in separating the corporate bond and strategic bond categories but even these sectors contain less than 150 funds between them.

While this may seem more than enough to some, it is nonetheless only a fraction of the almost 800 recognised and fully regulated funds available. Most importantly, it is in this wider universe that some of the most interesting funds reside. For our part as multi-managers, we have found and invested in some quality funds in taking this path which has contributed in no small part to the strong perform-ance from our corporate bond portfolio.

Aidan Kearney is co-head of multi-manager portfolios at Aberdeen Asset Management


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