Investors urged to actively manage fixed interest

Fixed interest investments should be actively managed to get the best returns, just like shares, J B Were's head of capital markets Peter May says.

May says there is a tendency for people to take a buy and hold strategy with fixed interest. Yet if they choose to actively manage those assets the returns could be substantially increased.

About four years ago the idea of actively managing fixed interest didn't make sense, he says, however it does now because the markets are so volatile.

This volatility means that the opportunities to enhance returns are greater than before.

As an example JB Were recently bought some GPG notes and then sold them a day later for a 10 basis point profit, because of movements in the markets.

While 10 basis points may not seem like much it is a useful gain to make in a fixed interest portfolio.

One of the big criticisms of trusts is that they have trouble adding value.

"(We were) conscious that advisers were sceptical that trusts charging more than a 1% annual management fee could not add value over time," he says.

Consequently the fee in JB Were's new trust was set at 0.85% with a trail brokerage of 30 basis points. If rebated the fee reduces to 0.55%.

May says the explosion of subordinated debt offerings (capital notes etc) has created lots of depth to the market, however he warns that investors face some significant risks.

The two major ones are the default risk and what happens at election time.

He is sure some of these offerings will fall over and people will lose money. Also the sector will get badly burnt if an offerer decides at election time to repay investors with shares rather than cash.

Such a move will tarnish the sector as most investors consider that their principal is safe and they will get it all back when the investment matures.

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