With average returns in fixed income approaching 50% over the last five years, are investors - and advisers - flocking to the asset class at just the wrong time?
Hindsight, particularly in investment, is both a wonderful and frustrating thing. How often might investors look back and think: ‘that is when I should have gone in’?
When the global credit crunch began five years ago, and banks started to collapse on what seemed like a monthly basis, investors were left scrambling to protect their capital. As risk appetite faded and seemed to almost disappear, investors pulled money from equities and property and poured it into fixed income.
According to FE, UK investors in fixed income could have expected average returns of 45% in the five years to 25 September, while those in equities saw an average return of 14.1%. Over the same timeframe, investors in property stood to lose, on average, just over 23%.
Is fixed income shift proof of rear-view mirror investing?
At the end of the second quarter in 2007, 72% of funds under management in the Investment Management Association (IMA) sectors were in equities; by the end of Q2 this year, that figure was down at a little above 51%.
Conversely, fixed income has seen its share of funds under management rise, albeit marginally. At the end of the second quarter in 2007, 17.3% of IMA sector funds under management were in fixed interest. This has increased year-on-year and, at the end of the second quarter this year, 18.8% of funds under management in the IMA sectors were in bonds.
Despite these figures, and a growing feeling that equities are set to perform once again, IMA bond sectors have been the best-selling net retail sectors over the past eight months, while equity sectors continue to be the worst-selling.
The bond market has also recently experienced a “resurgence of supply”, according to Aviva Investor’s Strategic Bond fund manager Chris Higham.
Higham said September was the second largest month in a decade for bond issuance in the euro non-financials sector, showing corporate confidence has returned.
This article continues…
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