UK - Global growth and rising inflation should not deter pension schemes from investing in bonds, Baring Asset Management claims.
It points out that despite the higher risks associated with government bonds, fixed income investments -particularly index-linked bonds - are still highly attractive, with yields expected to rise.
BAM spokesman George Harvey said directional investment strategies, which offer the prospect of positive absolute returns regardless of market ups or downs, should be another consideration.
Directional investing is designed to deliver positive absolute returns by being long of the market when the market is rising, and short of the market when it is falling, profiting from any declines. This allows the investor to receive positive returns whichever way markets move.
Harvey said: “Although we are cautious on the prospects for bond markets from here, this doesnít mean that investors should necessarily reduce the exposure of their portfolio to the fixed income markets.
“While fears of higher inflation may affect conventional bonds, index linked bonds shield the investor from rising inflation, solving the dilemma of how to respond to an inflationary environment.”
The Insight Investment Managed Index Linked Institutional Pension bond fund is one of the UKís top performers having returned 5.67% during the past year and 29.56% during the past five years.
The Merrill Lynch DC Index Linked Gilt E-Pen fund has also performed well, returning 4.99pc during the past year and 29.40% in the past five years.
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