UK - Pension schemes should continue their move from government to corporate bonds despite a weak start to the year, Schroders claims.
The fund manager expects the asset class to outperform corporate bonds over the next three years. Schroders says sterling corporate bonds offered “easy money” in 2003 and the improving economic cycle meant schemes should remain confident and include them in a “sensible investment strategy”.
Schroders corporate bond fund manager Jamie Stuttard said pension funds – particularly those in deficit – should increasingly be using the extra yield available in corporate bonds which do not pose higher “equity-like” risks.
He said: “Such investments offer pension funds the opportunity to match their assets more closely with their liabilities while achieving higher potential returns. But it is most important that the pension fund manager retains the active flexibility to sell bonds likely to underperform as the cycle progresses.”
He added: “An allocation to corporate bonds makes sense, but without an active and rigorous fundamental investment process to add incremental value and avoid the likes of Parmalat and WorldCom, the longer-term benefits of corporate bonds may not be realised.”
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