Bonds set to outperform once again

Over the past two years, Corporate Bonds - debt issued by companies - have been one of the best performing asset classes, and one that I have used extensively in client investment portfolios since 2008. They are naturally defensive investments, that have become increasingly attractive as the Base Rate freeze at 0.5% becomes ever longer.

I attended the M&G "Meet the Managers" Conference in London yesterday, and after listening to the conference, I managed to grab a quick chat with Richard Woolnough, manager of the M&G Corporate and Strategic Corporate Bond funds, and one of the most respected managers in the industry. I asked Richard what the prospects for the next twelve months were, particularly in terms of credit risk and rising default rates that could occur if we returned to recessionary conditions.

Richard's contention is that default rates - that is to say those companies that fail to repay their debt - will remain low, as many of the weakest companies have already fallen by the wayside during the 2008/9 recession, and he believes that Corporate Bond holders are being compensated well for the risk. I agree, and as Base Rates are unlikely to increase before 2013 and corporate profits remain relatively stable, I expect Corporate Bonds to continue to be an attractive investment.

Another factor to consider is that research indicates that companies are not looking to raise capital at this time, so issuance of new Bond issues is low. This could well increase the "scarcity" factor, which may further support Bond prices.

As ever, before taking any investment decision, always take independent professional advice tailored to your circumstances.