Draghi’s corporate bond move tempting fund managers, says Chelsea’s McDermott

Added 9th June 2016

Mario Draghi's decision to extend the European bond buying programme has inspired several fund managers to dip their toes in the corporate bond pool, but no one knows how it will pan out, according to Chelsea Financial Services managing director, Darius McDermott.

In the meantime, however, McDermott noted that fund managers could benefit from the tailwinds of Draghi’s actions by increasing their holdings in European corporate bonds.

“While government bond yields in all developed markets are so low (negative in places), corporate bonds remain attractive in comparison. At the moment, you are being paid a fair amount for the extra risk you are taking,” he argued.

Both TwentyFour Dynamic Bond and Invesco Perpetual Monthly Income Plus have altered their weighting toward European denominated bonds following Draghi's announcement, he said.

“The former currently has its highest ever weighting in euro-denominated holdings (around 45%), having moved to become equally spread across euro and sterling bonds in the past few months,” said McDermott.

McDermott said TwentyFour’s fund and Invesco Perpetual’s fund have been taking on the subordinated debt of high quality European banks, in addition to finding debt opportunities in European telecoms, utilities and insurance companies.

Though no one knows quite how “the greatest financial experiment of all time” will pan out, "bond funds with decent exposure to Europe should have benefited," McDermott stated "as the move is supportive and will have been priced in in advance of the actual purchases." 

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