PA ANALYSIS: Why you should have stuck with gilts

Added 28th September 2016

While the popularity of different asset classes will ebb and flow, the one thing I have learned in my 11 years in financial journalism is that gilts are never a fashionable choice.

PA ANALYSIS: Why you should have stuck with gilts

Yet, if I take a look over the past 10 years – the lifespan of Portfolio Adviser – just putting my money in an average gilt fund and ignoring the noise would have delivered me a very healthy return indeed.

According to data from FE Analytics, the IA UK Gilts sector has given a total return of 73% over the past decade, yet can you name a single ‘star’ fund manager in this space?

From a domestic perspective, the closest competitor was UK All Companies with 72%, while the average UK Equity Income fund would have delivered a total return of 69%.

From a fixed income perspective, the median fund in Sterling Corporate Bond registered 56% over the decade, while the much vaunted Strategic Bond funds returned 53%.

Much of outperformance of gilts has come in the past two years, particular this year where we have seen a further fall in government bond yields and tighter credit spreads – a direct result of central bank bond buying and, in the case of the UK, additional monetary easing.

"Can you name a single ‘star’ fund manager in the gilts space?"

Chris Iggo, CIO of fixed income at AXA Investment Managers, suggests the current bond market environment is almost completely being controlled by central bankers across the world, as they continue to struggle to stimulate growth and achieve inflation targets.

However, he stresses there are risks ahead, which stem from the fact that the bond market is currently overvalued.

 

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About Author

Gary Shepherd

Editor

Portfolio Adviser

Gary joined Last Word Media in 2009, becoming editor of Portfolio Adviser a year later. Previously, he worked at Incisive Media with roles across its Professional Adviser, Investment Week, Bloomberg Money and Mortgage Solutions titles. Gary has been shortlisted for various awards, winning Headline Money Investment Writer of the Year in 2010.

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