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Mott shuns bonds over yield concerns

PSigma income manager Bill Mott says he will not invest in bonds despite the attractive valuations seen in some areas recently.

Mott says market turmoil has led investors to flee to better-quality bonds, pushing down yields.

He says: “Unless we moved into an Armageddon situation, I do not see the attraction of bonds for my fund. I think that as the US and UK continue to cut interest rates, inflation is going to take a back seat for economic policy, meaning that growth will continue to be negative for bond yields. If you want to play bonds, it is probably safer to go into ones that are index-linked to inflation.

“On the whole, bonds are expensive globally and a risk in the medium term.”

A number of high-profile names, including Jupiter income manager Tony Nutt and Hargreaves Lansown head of research Mark Dampier, have been talking up bond opportunities in current markets.

Mott says some areas, such as high-yield bonds, look attractive but would not fit in with the themes of his fund, especially given current equity yields.

He says: “There are some high-yield bond funds that offer the opportunity to generate higher returns but there are strong risks making them inappropriate for an income seeking fund like mine.”

Hargreaves Lansdown investment manager Ben Yearsley says: “I think there is opportunity across the whole spectrum, with high yield and investment grade looking attractive.

“It has reached the point where a number of UK equity income funds are now looking at bonds as a potential investment on a 12 to 18-month view, with the belief that they will rival equity returns with arguably less risk.”

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