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Strategic bonds set to beat return in corporate sector

Henderson head of retail fixed income John Pattullo believes opportunities in the strategic bond sector currently outstrip those in the corporate bond sector.

Pattullo says strategic bonds have the flexibility to offer a significant exposure to high yield compared with corporate bonds, which can only invest up to 20 per cent.

He says: “If you look at the corporate bond sector, most of the value has already been realised. The likes of industrials and telecoms are trading at levels that were seen before Lehmans. At the moment high yield looks more attractive than the likes of Vodafone.”

“Gilts are also looking expensive, thanks to supply. Ten-year gilts are now yielding 3.6 per cent compared with 2.93 per cent in March.”

The corporate bond sector has around £30bn of assets in 88 funds while the strategic bond sector has £12bn in 65 funds. Performance across the two sectors has been fairly similar in the past 12 months, with the average corporate bond fund losing 2.1 per cent compared with 3 per cent for the strategic bond sector.

Hargreaves Lansdown investment manager Ben Yearsley says: “I agree that strategic bonds look more attractive given their flexibility for the retail market. It may not be the right time to invest, given the good run they have been on at the moment. It depends on whether or not you believe that all the bad news in the economy has come out yet.”

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