Investec head of multi-asset Philip Saunders has doubled his exposure to investment grade corporate bonds in the £390m Investec Multi Asset Protector fund, in the expectation that they will perform as a defensive asset.
The fund’s exposure to corporate bonds has risen from 7 per cent to 15 per cent in the past two months.
Saunders says the fund is positioned cautiously but he considers there is too much pessimism among investors about the global economy.
He says: “We are now positioned relatively cautiously because investor sentiment is so poor at the moment. It suggests that short of Armageddon, the downside is not as much as people fear.
“We are holding less equities and more investment grade bonds. Given that sentiment remains poor and our expectations that economic growth will be on the weaker side, investment grade bonds will deliver a superior return to cash. Cash rates are very low at the moment.”
Saunders says it is unlikely that government bonds will outperform corporate bonds if the market turns volatile because investor sentiment is already very low.
He says: “We expect investment grade bonds to act as a defensive asset. On a long-term basis, certain equities are more attractive than investment grade bonds, but we are cautiously positioned so we would rather hold these bonds.”
Rowan Dartington head of collectives research Tim Cockerill says: “So long as economic uncertainty remains and interest rates are low, investment grade bonds seem likely to be supported by the market.”