Are bonds too high-octane?

Investors looking for true havens should stay away from corporate bonds, warns IPS Capital, a private client manager, in a recent research note.

As seen in today’s announcement from the Investment Management Association (IMA), corporate bond funds are extremely popular with retail investors. It has been the top selling sector, in net retail terms, for the last four consecutive months as investors continue to shy away from equities.

However, according to IPS, most funds contain bank debt and assets that are trading at distressed levels, for which there is a significant downside in this economic environment.

IPS cautions many investment grade funds may therefore be “higher octane” than advertised. The warning is particularly apt following last week’s news that the Pearl Group has deferred on making a £33m interest payment on some of its bonds.

More on the IPS research will follow during the week.