Jupiter chief investment officer John Chatfeild-Roberts has warned bond investors that potential for further gains in the asset class now look limited.
The multi-manager guru says that while government bonds have attracted major assets, further gains are likely to be smaller given that interest rates will remain low, while the risks associated with holding these assets are increasing.
He says: “Government debt looks particularly vulnerable with the yield on US Treasuries blowing out from 2.51 per cent to 3.28 per cent last week on the back of a new stimulus package aimed at boosting US growth and better economic data.
“This has come on the back of sharp rises in yields this year for debt-ridden eurozone countries such as Greece, Ireland, Portugal and Spain and investors should expect volatility to continue into 2011.”
He also believes investment grade corporate bonds look less attractive, claiming that while companies may be in good shape they remained vulnerable to increases in government bond yields.
He says: “Opportunities remain further down the credit rating spectrum but investors need to be very selective and focus on protecting against downside risk.”
Chatfeild-Roberts points to opportunities in equity income, given that they have underperformed growth funds for some time.
He says: “They may prove a better option for investors seeking income than all but the most flexible of bond funds.”
Chatfeild-Roberts says that he is not as pessimistic on the UK economy as some, highlighting the likes of strong growth in the manufacturing sector as a good economic indicator. He also says there will be adequate growth in the US.
He also says there will continue to be excellent investment opportunities in the emerging markets, but says that transition for emerging markets “will not always be a smooth ride”.
He says: “How these countries manage their growth, especially in the face of so much liquidity looking for a home, is as important as the way in which the West tackles its structural deficiencies.”