The firm points out that the gap between yields on gilts and corporate bonds has widened dramatically in the last six months.
In the financials sector, these spreads imply one in five UK banks going bust over the next five years, which Henderson believes is unlikely. It believes the economic assumptions reflected in bond prices are worse than the likely outcomes despite the fact that global growth is slowing.
The firm points out that central banks are already acting to avert a major global recession and that the corporate sector is in good financial shape.
Against this backdrop, Henderson recently added the Old Mutual corporate bond fund and the Pictet Asian local currency debt fund to its distribution and income & growth portfolios. This marks a departure from the team’s use of strategic bond funds in the last few years, when it felt that with no clear opportunities, it was better delegating asset allocation within fixed interest to strategic managers who were very close to bond markets.
The Old Mutual corporate bond fund was chosen to provide pure exposure to investment-grade corporate bonds, including financials.
Henderson says this fund has had a difficult time in the last nine months because it is so focused on investment-grade corporate bonds but expects it to provide the potential for positive returns with limited downside risk.
The Pictet Asian local currency debt fund was also chosen for its attractive risk/reward trade-off.
Co-manager Katy Gladstone says: “Overall, we think that this product can act as a useful diversifier for our port-folios while giving exposure to a number of attractive themes and paying an attractive yield. It is an appealing combination.”