Advisers prefer emerging market debt to gilts

Some 40% of advisers believe emerging market debt will offer the best fixed income returns over the next 12 months, according to an adviser survey by Axa Investment Managers, while only 2% now recommend gilts.

Although the Treasury recently authorised a new round of quantitative easing from the Bank of England, and a second round of quantitative easing in America looks likely, advisers have moved away from gilts, citing inflation and downgrades as a potential difficulty for the asset class.

Half of advisers said investment-grade corporate bonds would offer better medium-term value than gilts, while 32% said they would recommend them in the next 12 months.

However, some 46% of advisers added inflation, which erodes the value of most investment-grade instruments, was a worry for their clients’ portfolios, leading them to consider inflation-linked debt. (article continues below)

Partly as a result, advisers preferred assets which were relatively unaffected by British inflation, such as emerging market debt, which 23% said they were planning to recommend in the next 12 months.

Some 29% of advisers also said high-yield bonds would provide the best returns, with 19% looking to recommend them.

Because of its higher interest payments and real returns, high yield debt is usually less affected than rises in inflation and hence potentially in interest rates.

Axa conducted the survey with 242 advisers from across the country.