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Global bond sector outperforming its peers, says Moneyspider.com

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Investors are continuing to pile money into corporate bond funds, but it is the global bond sector which is outperforming its peers, according to research by Moneyspider.com.

Investors are continuing to pile money into corporate bond funds, but it is the global bond sector which is outperforming its peers, according to research by Moneyspider.com.

Other equity-based sectors, such as Japan, emerging markets and specialist sectors, have effectively been abandoned by investors now appearing to be less inclined to take on funds with a riskier profile, says Moneyspider.com spokesman Tony Ahearne.

‘What we are seeing is effectively a flight to safety – and of course a flight to income – as global bond funds remain one of the few sectors where investors can extricate genuine income streams from their portfolios,’ he says.

In March 2009, the most popular sector for Moneyspider.com investors was corporate bonds – around 26 per cent of investors holding their portfolios with the service are now in bond-based funds.

‘The trend broadly reflects the fact that investors are now taking a deeply cautious approach to the nature of their investments – if you bear in mind the average profile of Moneyspider.com investor, typically in their late 50s to late 60s – then this caution is unsurprising,’ says Ahearne.

‘Investors like the fact that the better performing corporate bond funds – such as M&G’s market leading fund – aim to provide a regular income and the potential for capital growth, coupled with a lower risk than investing in equities.

‘But as our research shows, investors may wish to look at moving into the global bond sector in order to maximise returns.’

Ahearne says that with gilt yields down managers are having to look under every stone to maximise income – government bonds and highly rated investment grade corporate bonds tend to perform well when economic growth is deteriorating.

The UK All Companies sector – which accounted for 19 per cent of gross Isa sales in February of this year – has also proved popular with Moneyspider.com investors.

‘Looking at the wider, equity-based picture, there is a perception in the current climate that overseas based funds are much higher risk – so the exodus from Japan funds, for example Moneyspider.com clients are holding up to 80 per cent less exposure in Japan, Asia Pacific (excluding Japan) and Japanese Smaller Companies, along with Global Emerging Markets, is hardly surprising,’ says Ahearne.

That said, Ahearne warns that investors could be shooting themselves in the foot by the wholesale abandoning of more exotic funds.

‘If you look at Neptune’s Japan Opportunities fund for example, an investor would have nearly doubled their money over the past five years. This fund has turned an initial GBP5,000 investment into GBP8,665 over the past five years.

‘Corporate bond funds continue to deliver lower volatility and healthy yields, which are bound to be attractive given the appalling rates available to savers generally.

‘But investors would do well to remember that many bond managers will be saddled with under-performing bonds which they cannot sell. That said, high quality investment grade corporate bonds are still extremely attractive, especially when compared to government bonds and cash deposits."

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