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Strategic bond sector is investor favourite

Strategic bond sector is investor favourite

29 November 2010 / by Rachel Mason

- 30% of all fund investment into strategic bonds

- 18% into equity income funds

- Emerging markets is the 'one to watch'

Strategic bond funds made up 30 per cent of the total amount invested through the Fair Investment Company funds service between January and October this year.

Of all types of fund and ISA investment available through the service, strategic bonds were by far the most popular, accounting for nearly a third of the total amount invested.

Not only were strategic bonds the most popular type of investment, but one fund in particular accounted for a quarter of total investment – the Invesco Perpetual Monthly Income Plus Fund.

Nick Scarrett, head of pensions and investments at Fair Investment Company says strategic bonds are popular simply because they have been offering a good mix of returns.

"We have seen so many investors opt for this type of product purely because of the fact that they are yielding a high income (in excess of five per cent) and have offered good levels of capital growth recently," he said.

"The Invesco Perpetual Monthly Income Plus Fund is particularly popular because is has a 6.75 per cent yield and 16.5 per cent capital growth*, which is a good story."

After strategic bonds, the next most popular with investors were equity income funds (18 per cent), specialist funds (8 per cent) and global growth (8 per cent) funds; Nick explains why clients are tending to opt for these types of investment.

"Like the strategic bond sector, equity income funds have seen good levels of growth and income, for example, the Blackrock UK Income (3.5 per cent yield and 31.2 per cent capital growth*), and, both specialist and global funds have been performing well because commodity prices have increased for quite some time, especially gold, and the emerging market economies have proved particularly resilient to the global recession."

Nick says investors are normally attracted to funds that have performed well and tend to invest at the peak of the market.

"If you look at the top 20 performing funds over a year*, nine are in the specialist sector- mainly linked to gold - and six are in global growth," he said.

The areas that have been the least popular are Japan, UK smaller companies and absolute return funds; Nick says that on the whole these sectors have not performed well over recent years.

"UK companies have made a comeback this year, as has Japan, but the one to watch is emerging markets. I think most investors see real growth in this sector in future."

* Source: Trustnet correct as of 29/11/10
** Source: Fair Investment Company 01/11/10
Investments into the Fair Investment Company funds service (January – October 2010)
Sector                                                 % of all investment into Fair Investment funds service
£ Strategic Bond                              30.4
UK Equity Income                           17.8
Specialist                                          8.5
Global Growth                                  7.8
UK Equity Income & Growth          7.5
Asia Pacific Excluding Japan        5.9
£ High Yield                                      5.4
Cautious Managed                         3.4
£ Corporate Bond                           2.8
Balanced Managed                        2.5
UK All Companies                          2.3
Global Emerging Markets             1.9
Other                                                 3.8