The British gilts sector, having been the best performing asset class last year, has found 2012 less than kind to it thus far, and the knives are seemingly out for its prospects.
In the past few weeks, several bond managers have slashed their allocations, with some predicting the “gilt bubble” is about to burst. This would come as a blow to those retail investors who ploughed some £588m into the asset class in 2011, making it the ninth most popular sector over the year, up from 15th in 2010 when some £482m was invested.
With most of 2011’s sales coming in the second half of the year, the statistic that the average gilt fund has delivered a -1.5% return over the year to date could prove confirmation of the old adage of retail investors buying high and selling low.
However, this week’s cover story by Cherry Reynard questions whether gilts really have reached the end of their run. She highlights numerous supportive factors for the asset class, which was boosted by last week’s fresh round of quantitative easing (QE) by the Bank of England to the tune of £50 billion.
The counter argument is that there appears to be little room, despite more QE, for gilt yields to fall much lower, and many see the asset class as overvalued. Yet for the time being there are few signs of the “bubble” bursting. (Comment continues below)
Meanwhile, since it was announced advisers will have to consider investment trusts as part of a wider suite of investment products after the retail distribution review (RDR) comes into force on January 1, 2013, many have predicted a resurgence in demand for closed-ended funds.
Despite their long track records, some of which stretch back to the 19th century, investment trusts have struggled to appeal to the retail investor community (remember the ill-fated ITs campaign of 2000-01?). The most frequently cited reason for this was that they do not pay IFAs any commission, so the hope is that RDR’s clampdown on commission will put investment trusts firmly on advisers’ radar.
However, at its recent investment companies’ conference, Winterflood Investment Trusts asked delegates (a mix of wealth managers, private client stockbrokers and investment trust board directors) what RDR’s likely impact on demand for investment trusts would be, and the result was hardly encouraging. Just 11% thought the impact would be considerable, while 36% predicted marginal or no difference.
Where there was consensus was that it is likely to be the major brands and the big trusts that benefit most. This should come as no surprise as it is these trusts that have spent the last decade improving their retail presence. Those that made no effort will continue to stay in the shadows.