Low yields are still dogging the fixed income market but it remains an asset class high net worth clients need to be in, according to a panel of speakers from RBC’s UK wealth management unit.
During the roundtable breakfast, George King, RBC’s head of portfolio strategy was adamant fixed income was integral to any portfolio, and there was still potential for even ultra conservative investors to see gains, despite the low yield within government bonds.
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King said there was a lot of fear around the highly nuanced sector of investing, but bonds and diversification still worked.
"The point for most clients is it’s a portfolio context. Classic portfolio diversification does still make sense and does still work," said King.
"The challenge is to make sure that ownership of fixed income is managed as thoughtfully and actively, and risk controlled as possible."
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By GlobalDataActive Management
RBC identified the ‘active management’ of fixed income as the key to making the most out of the low yields and managing risk.
Hakan Enoksson, head of fixed income, said having a shorter view on bonds is essential to actively seeking returns, and viewing the bonds simply by their maturation date doesn’t work.
Enoksson said the fear surrounding the risk of a disorderly sell off is minimal.
‘I don’t think there is any interest from the central banks to see a massive sell off in the government space’, he said, with central banks being central to creating such an environment.
Within the world of corporate bonds it is more volatile, however with the increased risk does come better performance than with government bonds.
Enoksson said this risk is a key concern, but with default rates declining active management was the way to progress in the fixed income market.
Guy Huntrods, RBC’s head of advisory, reiterated this point about active management and as part of the services offered to clients the bank is about more than just executing transactions on their behalf.
"We are watching their portfolios on a ongoing basis, subsequently we’re going down an active management approach as part of the service we’re offering, we don’t just execute, … buy and hold, off it goes, and never speak to the client again," said Huntrods.
As for the ‘great rotation’ out of bonds and into equities, King, Enoksson and Huntrods said this was far from the case.
Investors may be actively moving back into equities, but not at the cost of there fixed income allocations, they suggested.
‘If there has been a rotation , its clients coming out of cash and maybe going more into the equities space than the fixed income," said Huntrods.
