Investors expected to diversify in 2010 and most want their money to work more for them, survey shows

Written by Ray Clancy

Monday, 01 February 2010 09:53

Bonds are being tipped by Independent Financial Advisers as a good investment for 2010 and in general are recommending diversification of fixed income, according to a survey.

Some 86% said they will recommend that clients diversify their fixed income portfolio this year, the research by AXA Investment Managers, Baring Asset Management (Barings) and Cazenove Capital, shows.

One in five IFAs, 20%, plan to encourage their clients to increase their exposure to fixed income over the next 12 months, as opposed to 17% who will recommend that they reduce it. Just over half, some 54%, said that they believe their clients currently have the right allocation to this asset class.

With low interest rates, 93% of IFAs said that clients are asking for advice on how to generate higher levels of income from their investments. Around 85% of their clients expect a level of income of between 3% and 5% from their fixed income portfolios, and one in eight expects 6% or more.

However, perhaps one of the biggest changes to take place in the fixed income market in 2010 will be greater diversification. Nearly nine out of ten IFAs, 86%, claim they will be advising their clients to diversify their exposure to fixed income.

Some 65% of IFAs said they will be promoting strategic bond funds, followed by absolute return bond funds, 57%, and 53% saying they will promote corporate bond funds. Some 39% are recommending global bond funds, 27% high yield corporate bond funds and 21% gilt funds.

One in two IFAs believe their clients should have between 11% and 25% of their investment portfolio allocated to fixed income strategies, while 35% believe it should be between 26% and 50%.

‘Last year was a good one for the fixed income market and our research shows that many IFAs remain positive about its future prospects. The survey results demonstrate that UK Corporate Bonds remain a key and growing area for fixed income investors and a primary source of income in a low interest rate world,’ said Rob Bailey, Head of UK Sales at AXA Investment Managers.

‘However, with uncertainty surrounding some of the government debt issues I am not surprised to see that 39% and 27% of intermediaries plan to recommend investing in global bond funds and high yield bond funds respectively. These funds will offer investors added diversification and a greater spread of risk within their fixed income portfolios,’ he added.

According to Rod Aldridge, Head of UK Retail Distribution at Barings, said that with interest rates at an historic low, investors have been placing a greater focus on the fixed income market.

‘Indeed, higher rate taxpayers need to secure an interest rate on their savings of at least 3.17% to beat the current level of inflation but only nine savings accounts out of nearly 800 offer this. This and the fact that there have been a number of attractive opportunities in the fixed income market have meant that investors have placed a greater focus on this sector,’ he explained.

‘Between the end of 2008 and the third quarter of 2009, funds under management in UK domiciled bond funds increased from £75 billion to £96 billion. The findings from our research indicate that 2010 is likely to be another interesting year for the fixed income sector,’ he added.