Investment CLINIC
THEY are not guaranteed, in any sense of the word. A strategic bond is not like a bond account you have with a bank or building society — it is a type of investment.
That means there is no guarantee of how much money you will get out of one — and no guarantee that you won’t lose money.
A strategic bond fund is so-named because it invests in all different types of debt.
This mean it lends money to companies and governments, and they pay back interest in return, as well as returning the initial sum after an agreed period.
While a corporate bond fund invests only in company debt and a Gilt fund invests only in government debt, strategic bond funds have the flexibility to move between them all.
For example, the Jupiter Strategic Bond fund has a third of its money in UK government debt, some in Australian government debt and some in the debt of companies in Asia, Europe and South Africa.
Some of these companies will be so-called investment grade, which means t hey are l arger, more stable firms.
Because of that, they pay less interest, but there is less chance of them not paying back.
Other company debt will be noninvestment grade, which generally means smaller, more risky firms, which pay a better interest rate, but have a higher chance of defaulting on their debt.
A strategic bond is able to pick and choose to invest in a vast range of bonds, which means that if the manager running the fund is able to spot trends at the right time, these funds should perform well, regardless of what is happening in the economy.
The down point is that the manager may make a wrong call and be invested in the wrong thing at the wrong time and so lose money.
If it is a guaranteed return you are looking for, you are best to stick to those on offer with banks and building societies. Your money may grow slightly less this way, but it will provide peace of mind because you will definitely get it all back.