When this happens, the performance of short-dated Fixed Interest investments can suffer. As it is expected that this monetary policy will persist for the foreseeable future, we are recommending changes to mitigate exposure to short-duration bonds, but without exiting this area altogether as this would dampen the level of diversification within the portfolio.
To do this, the following changes are recommended:
– Switch the Invesco Corporate Bond Fund with the Schroder Sterling Corporate Bond Fund
– Switch the Invesco Global Bond Fund with the BNY Mellon International Bond Fund
Why Remove Invesco?
Within the Fixed Interest section of your portfolio, the Invesco funds have typically had a more aggressive stance on duration than its peers, with the average duration being around 5 years compared to the average duration of the market being closer to 8 years. As such, since short-duration is out of favour at present, it is the Invesco funds which will make way for alternatives this quarter.
The Schroder Sterling Corporate Bond Fund
Established in 1995, this fund has a strong track record in this sector and, importantly in this case, has an average duration in underlying bonds of 7.6 years. This helps to reduce your exposure to short-dated bonds, as per the explanations above. This fund has achieved returns of 11.76% over the last 12 months, and aims to provide income and capital growth by investing in both UK and worldwide fixed interest holdings.
The BNY Mellon International Bond Fund
Again, the reason for this change is that the average duration of the underlying bonds is 8.5 years and, therefore, more suitable than the current Invesco fund in this area. This fund has a leaning towards investing in worldwide Government Bonds, as opposed to Corporate Bonds, which might prove useful if global GDP continues to fall.