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Insight prefers bonds to access financials

Insight’s multi-manager team is taking advantage of the fallout from the credit crunch by buying into bonds issued by banks.

Some multi-managers are still avoiding the financials sector because they are uncertain whether more bad news is to come. Insight says this is exactly why it is a good time to invest.

It notes that credit spreads have widened and it believes that accessing financials through bonds rather than equities offers attractive risk-adjusted returns.

The company expects rates on longer-term bonds in the UK to increase, known as a steepening of the yield curve. This reflects the fact that although the UK has to deal with a slowing global economy by making further rate cuts, it must also fight rising inflationary pressure in the long term.

Co-head of multi-manager Patrick Armstrong says: “We think banks are on the first step of fixing their balance streets through rights issues. Central banks have bailed out the banks in trouble and they are now offering attractive risk-adjusted returns.

“We can get a higher risk premium on bonds from financial companies. It is possible to get cash plus 5 per cent on bonds and cash plus 4 per cent on equities.”

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