Mention the word 'bond' among investors and you will probably hear a few sighs of boredom. While debt instruments are safer investments than stocks, returns can be pedestrian in comparison. But Paul Brain believes there is reason for investors to become a bit more excited about bonds.
'A lot of people think we are just a bunch of eggheads sitting in the corner with slide rules,' said the head of bonds at Investec Asset Management. 'But we have a bit more fun than that, especially these days.' For a start, there is the expectation that a sweet spot for bonds is on the way. Bond funds tend to do poorly when interest rates are rising. Yields go up and prices come down, hitting invested capital.
The time was nearly right for investors to take the plunge with bond funds such as Investec's High Income range, said Mr Brain, a self-made man who has worked his way up from bank teller.
'The closer we get to the peak in US interest rates, the greater the opportunity for bond markets to rally,' he said. 'We are pretty close to the peak. I still believe the Fed needs to tighten monetary policy a little bit more. Our central case is for about 50 basis points. That is being revised because the economy does seem to be moderating.
'Because the Fed is still likely to raise rates, we are not jumping up and down saying now is the time to buy. But during the summer months I think we will get some volatility in the dollar interest-rate markets which will affect high-yield markets, and that will be a good opportunity to invest.
'If it is possible to do, I would watch the price of the fund over the next couple of months. It should be favourable but it might slip a little bit as rates push up.
