Are bonds making a comeback?
Nicholas Ware, Co-Portfolio Manager of Henderson Diversified Income Trust, talks about the Company’s performance year-to-date, areas where he is finding opportunities and how he is navigating interest rate and inflation risk in a volatile market environment.
PODCAST:
15 minute listen
Key takeaways:
- Geopolitical tensions, elevated market volatility, and tightening monetary policy have engendered a difficult environment for fixed income investors.
- We have been increasing our exposure to investment grade bonds whilst reducing our gearing, thereby reducing the overall risk of the portfolio. We continue to look for non-cyclical, modern day facing businesses with good free cash flow yield.
- We see this as a time for caution and flexibility within the portfolio. However, higher yields are adding to the attractiveness of bonds and investors can potentially earn a higher income while pursuing resiliency during a period of high volatility.
Catch up on previous episodes of Trust Radio
Inflation – The rate at which the prices of goods and services are rising in an economy. The CPI and RPI are two common measures.
Inverted yield curve – An inverted yield curve occurs when short-term interest rates exceed long-term rates. Under normal circumstances, the yield curve is not inverted since debt with longer maturities typically carry higher interest rates than nearer-term ones.
Monetary policy – The policies of a central bank, aimed at influencing the level of inflation and growth in an economy. It includes controlling interest rates and the supply of money. Monetary stimulus refers to a central bank increasing the supply of money and lowering borrowing costs. Monetary tightening refers to central bank activity aimed at curbing inflation and slowing down growth in the economy by raising interest rates and reducing the supply of money
Related insights
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.
Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.
Marketing Communication.
Important information
Please read the following important information regarding funds related to this article.
- If a Company's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio that is diversified across more countries.
- Higher yielding bonds are issued by companies that may have greater difficulty in repaying their financial obligations. High yield bonds are not traded as frequently as government bonds and therefore may be more difficult to trade in distressed markets.
- This Company is suitable to be used as one component of several within a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested in this Company.
- Active management techniques that have worked well in normal market conditions could prove ineffective or negative for performance at other times.
- The Company could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Company.
- The return on your investment is directly related to the prevailing market price of the Company's shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the Company. As a result, losses (or gains) may be higher or lower than those of the Company's assets.
- The Company may use gearing (borrowing to invest) as part of its investment strategy. If the Company utilises its ability to gear, the profits and losses incurred by the Company can be greater than those of a Company that does not use gearing.
- All or part of the Company's management fee is taken from its capital. While this allows more income to be paid, it may also restrict capital growth or even result in capital erosion over time.
Specific risks
15 minute listen
- Geopolitical tensions, elevated market volatility, and tightening monetary policy have engendered a difficult environment for fixed income investors.
- We have been increasing our exposure to investment grade bonds whilst reducing our gearing, thereby reducing the overall risk of the portfolio. We continue to look for non-cyclical, modern day facing businesses with good free cash flow yield.
- We see this as a time for caution and flexibility within the portfolio. However, higher yields are adding to the attractiveness of bonds and investors can potentially earn a higher income while pursuing resiliency during a period of high volatility.