Posted on: 29 September 2016
This week James Humphreys and Ebru Smith, from Duncan Lawrie’s Research team, provide an insight into bond proxies and discuss the other assets investors are considering to help diversify their portfolios.
What is a bond proxy?
A bond proxy is a stock which offers the same characteristics as a bond, in that it provides a stable and predictable regular income stream. The difference is that bond proxies provide higher yields than bonds.
In this video James and Ebru discuss when bond proxies are used, their relatively high cost at present and the rise of alternative asset classes that offer good yield incomes in this current environment.
Alternative investments for portfolio diversity
The cost of bond proxies has been relatively high recently and Duncan Lawrie’s Research team have been looking at alternative strategies which are going to offer stronger yields. Absolute return strategies, for example, offer return at all economic conditions and have lower volatility than equities. Specialist strategies which offer risk adjusted returns have been popular too.
The Investment Research team think that property is currently an attractive area. Since Brexit we have seen a great recovery in Real Estate Investment Trusts (REITS) and they are up around 6% in the last three months.
For those investors that are looking for lower risk type investments, there are more and more options with strategies that only used to be found in hedge funds - with expensive fees and difficult entry requirements - available.
Increasingly these types of strategies can be found in UCITs funds (Undertakings for The Collective Investment of Transferable Securities), which are regulated structures with much lower fees. UCITs offer the same sort of sophisticated approach that means they can go up in value and earn positive returns, even when wider markets are deteriorating and they can offer very good diversification benefits for client portfolios. This is another area we are considering.
All data has been compiled by Duncan Lawrie from sources believed to be reliable. Full details of sources are available on request.
The comments and figures in this document are generally applicable but you should always take specific advice to suit your individual circumstances before taking any action. Errors and omissions excepted.
The value of investments and income generated may fall as well as rise, and investors may not get back the amount invested. Past performance is not a reliable indicator of future results.