Tora says the credit crunch has driven lots of money into safer areas of the market and made corporate bonds look much riskier, hence the yields being so much greater.
He said: “You can pick up some absolutely staggering returns from some corporate bond funds at the moment and they are worth looking at but you have to be aware of the higher risk factor and levels of failure that come along with these yields, given that some of these money market funds that have these complex instruments have been involved in the credit crunch.”
Tora said he has recently bought into the Invesco Perpetual leveraged high-yield bond fund which operates at the junk end of the market.
He said: “I am buying this for yield but with a sensible house behind it and I think there are a number of bond funds like that.”
Thames River co-head of multi-manager Gary Potter says: “The biggest thing with investment-grade corporate bond funds is liquidity because many of these issues in funds cannot be solved, so if a manager gets big redemptions they cannot sell them, as no bank will take them on their books.”