Strategic Bond Funds

Strategic Bond funds invest in a wide range of fixed interest securities. The main ones being

• Investment grade corporate bonds
• High yield corporate bonds
• Gilts
• Sovereign debt

with up to 20% of these outside of the UK.
In addition to regular bonds and gilts the fund may also invest in

• Convertibles
• Preference shares

The yield from strategic bond funds is currentlyvery attractive for long-term investors seeking income at higher rates than are offered by deposit accounts.

Strategic bond funds are exposed if general economic conditions worsen however medium-risk investors find them attractive for the following reasons

• Corporate bonds are still less risky than the shares of the same company
• The high yield is a very attractive compensation for the risk. For example with an 8.8% yield, a corporate bond fund can make a 4% capital loss, pay it's annual charges of say 1.75% and still give the investor a total return of 3.05%
• Corporate bond funds can be held by stocks-and-shares ISAs, giving the full return to investors with no further income or capital gains tax to pay
• If interest rates fall further, this will have a positive impact on the fund
• If economic conditions improve the underling bonds held by the fund are likely to be upgraded by the credit rating agencies, which will have a positive impact on the fund price

For a less-risky alternative, investors should consider regular corporate bond funds

For more information about strategic bond funds, contact us or use the enquiry form.