Bonds telling a good story
SOME READERS HAVE been asking what unit trust funds are best in the current turbulent market. Of course, much depends on the investor’s risk profile and time horizon, but the short answer is avoid speciality unit trusts for now (unless the investor has a specific, well-informed view on a sector) and look at the general equity funds or asset allocation funds – basically balanced funds, where the manager makes the asset choice.
But there’s a further alternative: bond unit trust funds. Bonds aren’t my area of expertise but yields suggest, I’m told, that bonds seem to be indicating that inflation is at or past its worst.
The problem with investing directly in bonds is that you need expert knowledge, as in what bond and do you go longer or shorter duration. And bonds cost a large amount.
Bond unit trusts should have an expert running the fund, are more affordable and money can be phased in via monthly debit orders.
Asset allocation unit trusts are probably currently relatively high in cash, with a lower than average equities exposure. That’s good: it provides some protection should the market get worse (gasp, and it could) and provides liquidity for the fund manager to pounce on undervalued opportunities as those emerge without having to sell other asset classes in the fund.
Money market funds remain an attraction but not one I’d go along with. The best thing is that a money market unit trust should be safer than cash in the bank. It’s unlikely, but one South African bank could collapse. A money market fund will be exposed to all the banks.
Sector calls are more difficult and in the interests of prudence should probably be avoided. But being the equities bull I am, my unit trust money would still go into a financials fund. What better time to buy than when everything looks so bleak?
But that’s just me. Better to tread cautiously with the sector funds.