Manager focus: Ian Williams

23 June 2009

Natalie Kenway

Ian Williams, manager of the City Financial Strategic Gilt fund, urges investors to rotate out of corporate bonds or risk losing 20% of their capital.

Williams predicts that inflation will return to British markets on a one-to-two year basis causing a rise in yields on long-dated conventional gilts and corporate bonds.

“Quantitative easing, which is basically the government printing money to cover its budget deficit, will prove inflationary in one or two years’ time. This leaves 30, 40 and 50-year conventional gilts and corporate bonds vulnerable. This means a long-term rate of interest rates rises and investors will lose money on corporate bonds and conventional gilts.

“The current yield on long-dated conventional gilts is around 4.4% and I anticipate this could easily rise to 5.5-6%, causing a 20% loss in capital. Likewise for corporate bonds.”

Williams cannot hold corporate bonds in the Strategic Gilt fund but says as an investor he would be inclined to sell out and buy index-linked gilts and equities, both of which will perform better than corporate bonds.

Nearly 100% of his portfolio is exposed to index-linked bonds and it seems investors share his view on the fixed interest market. Since November the fund size has increased from £25m to £60m today.

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