Strategic bond funds prove popular with investors for their high yields and capital growth

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Written by Ray Clancy

Tuesday, 07 December 2010 09:09

Strategic bond sector is becoming an investor favourite with 30% of all fund investment going into strategic bonds, research indicates, but emerging markets is the one to watch.

Of all types of fund and ISA investment available through the Fair Investment Company service between January and October this year, strategic bonds were by far the most popular, accounting for nearly a third of the total amount invested.

Not only were strategic bonds the most popular type of investment, but one fund in particular accounted for a quarter of total investment, the Invesco Perpetual Monthly Income Plus Fund, possibly because is has a 6.75% yield and 16.5% capital growth.

Nick Scarrett, head of pensions and investments at Fair Investment Company said that strategic bonds are popular simply because they have been offering a good mix of returns. ‘We have seen so many investors opt for this type of product purely because of the fact that they are yielding a high income, in excess of 5%, and have offered good levels of capital growth recently,’ he explained.

After strategic bonds, the next most popular with investors were equity income funds at 18%, specialist funds at 8% and global growth funds also at 8%.

‘Like the strategic bond sector, equity income funds have seen good levels of growth and income, for example, the Blackrock UK Income at 3.5% yield and 31.2% capital growth, and, both specialist and global funds have been performing well because commodity prices have increased for quite some time, especially gold, and the emerging market economies have proved particularly resilient to the global recession,’ explained Scarrett.

Investors are normally attracted to funds that have performed well and tend to invest at the peak of the market. ‘If you look at the top 20 performing funds over a year, nine are in the specialist sector, mainly linked to gold, and six are in global growth,’ he said.

The areas that have been the least popular are Japan, UK smaller companies and absolute return funds. Scarrett said that on the whole these sectors have not performed well over recent years. ‘UK companies have made a comeback this year, as has Japan, but the one to watch is emerging markets. I think most investors see real growth in this sector in future,’ he added.