Fund manager insights
The mandate for the fund is investment-grade bonds, according to David Knee, one of the fund’s managers. The credit quality of the fund is on average A, he said. A ranking of A- and higher by a credit rating agency such as Moody’s Investor Service shows that there is a high probability that the issuer of the bond would be able to repay its obligations, including the capital and interest.
“In the medium term we think these assets will perform well,” Knee said. Corporate bonds tend to perform poorly in an environment where interest rates are increased and a recessionary cycle kicks off, according to him. He didn’t foresee that happening at the moment despite the global economy enduring “headwinds” such as the slowdown in the Chinese economy and lacklustre growth in Europe.
“In recent years investors have allocated a lot to corporate bond assets in the search for higher yield,” Knee said. After the financial crisis and subsequent global recession in 2008 and 2009, central banks across the world lowered interest rates to historical low levels in a bid to boost economic growth. Investors flocked to high-return assets such as equity in emerging markets and corporate bonds.