UK/EUROPE - Unsurprisingly, for the third straight year in a row, fixed income securities proved to be a better investment than shares, according to the Barclays Equity Gilt Study.
The 2003 edition illustrates last year’s disastrous performance of equities, which delivered a negative real total return of 24.5%. In contrast, gilts posted a real return of 6.7%, corporate bonds delivered a 6.6% real return, and index-linked gilts a 5.1% return. Equities have now underperformed gilts over a full 10-year period.
For the future, the study strikes an optimistic note, calculating that financial markets are now discounting a very improbable future of exceptionally slow growth and borderline deflation.
Barclays recommends overweighting equity markets and avoiding bonds for most categories of investor, the exception being mature pension funds.
But, bonds are not all good news for investors, if the decision by credit ratings agencies to look at pension deficits in deciding company ratings is anything to go by.
German industrial conglomerate ThyssenKrupp became the first European company to be downgraded over its pension fund deficit following an earlier warning from Standard & Poor’s.
ThyssenKrupp was lowered to ‘BB+/B’ status from ‘BBB’, rendering it a junk bond.
AXA Investment Managers head of UK fixed income, Denis Gould, said the agency’s actions had “caused significant volatility in bond prices of the issuers involved”, and added: “We also believe they have a duty not to precipitate credit problems for companies.
“Long criticised for being too slow to react, agencies have to be careful not to go too far the other way.
“In particular we would like to see them being very careful with the tone of their statements, especially early in the development of a story when hard facts may be scarce.”
This week's top stories included Cardano announcing plans to acquire Now Pensions from a Dutch pension fund later this year.
Royal Bank of Scotland (RBS) faces a £102m impact on liabilities as a result of equalising guaranteed minimum pensions (GMPs), according to its annual results.
Malcolm Mclean says getting the channels of communication right and engaging more openly is a good starting point