Viewpoint: Good reasons for sticking with corporate bonds

The record low yields seen on corporate bonds still have the scope to go lower. However caution is required in this kind of environment and that careful credit selection, diversification and sound liquidity management is needed.

These concerns are valid, but the recent hysteria around corporate bonds, and in particular market liquidity, is exaggerated in my opinion. I believe that a conservatively run corporate bond portfolio with prudent liquidity management and access to good credit research offers the best risk-return mix for investors. I also think that corporate bonds continue to play a valuable role within most well-diversified portfolios.

Of course, you may think that as manager of one of the largest funds in the Corporate Bond sector, I have a vested interest in taking this stance. I would disagree, however. The position I am in ensures that I constantly think about these issues and the best methods to tackle the current challenging environment.

Yields on investment-grade bonds are at record lows. I think investors are right to question how low they can go, regardless of the robust corporate fundamentals that support credit.

My view is that they can go quite a bit lower because the environment of "financial repression" we are in today is likely to continue for some time. That is because central bankers and politicians remain welded to austerity and ultra loose monetary policy. It's understandable - they are eager to improve fiscal balances and avoid prolonged economic contraction. It is likely that this will extend the low-growth, low-inflation and low-interest-rate environment we see today with significant tail risks attached.

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