M&G star bond fund manager Richard Woolnough has warned cash is a better investment than debt following the extraordinary impact that central bank policies are having on returns for the asset class.
In an M&G blog, Woolnough said even though physical cash did not pay income and was costly to hold, it now represents a rival to bonds that have negative interest rates.
He says: “Developed bond markets are now at the point where the income on a 10-year bund and a 100-euro note is exactly the same (zero) and the yield advantage of owning a 10-year bund is gone.”
Woolnough is not the first fixed income manager to criticise bonds, with Janus Capital’s Bill Gross stating in August that he prefers gold.
Woolnough’s comments follow the latest Bank of America Merrill Lynch global survey in fund management which found 54 per cent of fund managers believe that equities and bonds are overvalued.
The survey found overvaluation of stocks is at its highest level since May 2000 and that the proportion of investors’ assets held in cash had risen to 5.5 per cent, with fund managers citing low yields as the main reason for the increase.
In the blog, M&G said one solution would for a bank or money manager to cash exchange traded funds for investors with large holdings of negative yielding assets which would enable them to switch into cash.
Woolnough says: “Such an ETF would allow both small and large transactions and allow customers from individuals to institutions to store their money efficiently at a zero rate before fees.”