Burgess, chief investment officer at Threadneedle, says that while areas of the fixed interest market have performed well lately, he advises income-seeking investors to turn to equities."In 2012, fixed income investors enjoyed a relatively easy ride with all areas delivering robust – and in some cases spectacular – returns," he explained.
"By contrast, successful active management is likely to be a more significant determinant of returns in 2013 as valuation concerns provide headwinds for a number of fixed income markets."
"In short, it will not be as easy to make money in fixed income in 2013 as it was in 2012."
Burgess thinks that as macro-headwinds persist and therefore valuations are very unattractive, so investors should avoid traditional "safe" assets such as government bonds.
"In fixed income, we continue to question the appeal of so-called safe haven core government bonds such as UK gilts and German Bunds," he explained.
"Yields remain at historically low levels (and are particularly unattractive in real terms) and the risk of capital losses down the road is significant."
He is more optimistic about other areas of the fixed interest market, such as high yielding corporate bonds. However, he says that the risks outweigh the potential for returns.
"Higher yielding areas of fixed income such as emerging market debt and high yield look more appealing, although strong returns over 2012 to date and significant spread-tightening mean it is much more difficult to make a strong valuation case for these sectors than it was a year ago," he continued.
With this in mind Burgess says that the hunt for yield is turning into a "scramble" and that investors should concentrate on a company’s shares and not its bonds.
He commented: "In the equities space, shares in large cap, high-yielding companies with strong balance sheets, robust cash-flow generation and proven capital allocation strategies are also likely to remain in demand, particularly as the shares in such companies often provide a higher yield than their bonds."
"In terms of equities, we continue to expect the strong to get stronger in 2013."
"Poor management, flawed business models and weak franchises are very likely to struggle in the tough economic environment, while proven management teams with strong franchises should prosper."
"Many of these quality companies are inexpensively valued, affording them significant scope to outperform," he finished.
Burgess runs three funds at Threadneedle, including the Threadneedle Global Equity & Bond fund. According to FE data, the manager has 22.7 per cent in bonds and 68 per cent in equities.
The fund has registered top-quartile performance over three and five years.
According to FE Analytics, over five years Threadneedle Global Equity & Bond has returned 16.84 per cent while the IMA Mixed Investment 40-85% Shares sector has made 10.48 per cent.
Performance of fund vs sector over 5-yrs
Source: FE Analytics
The fund has a minimum investment of £2,000 and a total expense ratio (TER) of 1.77 per cent.
Tony Yousefian, who manages the EFA OPM Fixed Interest fund, is equally negative about government bonds but believes that areas of the corporate fixed income market are still worth holding.
"Returns, generally speaking, in the fixed income market have been very good over the last three years," he said.
"However, there is now and will continue to be a much bigger differentiation between government and corporate bonds."
"I think corporate credit is becoming more and more important and we are of the same view of Mark Burgess that government bonds are too expensive."
"In the corporate area – so in both high yield and investment grade – bonds have done extremely well of late."
"High yield bonds are almost short-term quasar equities and if investors are bullish on equity markets then they should still expect good returns from them."
"All in all, I am cautious going forward. I still expect a certain amount of returns but I don’t think the overall bond market will perform as well as in recent years," he finished.