UK - The safety of corporate bonds is being improved by companies tightening budgets in weak markets, fund managers claim.
Steep losses at telecoms companies and bankruptcies at Enron and WorldCom are encouraging better practice elsewhere, they say.
Threadneedle Investments bond manager Ted Bacon said many companies were having to cleanse their balance sheets. And while it was not great news for equities, it was enabling bonds to stabilise.
Aegon Asset Management head of fixed income Malcolm Jones agreed that companies were cleaning up their balance sheets, but questioned how much could be gauged from company accounts figures.
He said: “The reality is that companies have been managing books and will continue to manage their books. It’s ultimately what shareholders and investors want to see. They don’t like to see volatile earnings figures, they want to see nice smooth earnings.”
But Lombard Odier head of UK institutional clients Paul Osborne pointed out that while bonds presented some of the safest investments open to pension funds, the asset class was not without its problems.
He said: “Like it or not, you expect some problems with the credit market, there’s no free lunch for holding credit. As an investor, look at where your alternatives are – equities are going pear-shaped for similar reasons.”
He added: “UK pension funds have been massive buyers of bonds over the last few years and, in particular, credit. Those kind of flows are not going to change overnight as a result of what we have seen.”
A handful of industry heavyweights have begun trialling a so-called 'mid-life MOT', with positive initial results reported by all those involved.
The Pensions and Lifetime Savings Association (PLSA) has announced it will shrink its board by more than one-third as part of a governance overhaul to make it "agile and more appropriate".
Smaller FTSE 350 defined benefit (DB) schemes were nearly 15 percentage points less well-funded than larger schemes in 2017, according to a Goldman Sachs Asset Management (GSAM) analysis.