Many industry experts are warning that yields are so low and prices so high in the corporate bond sector that there is little to nothing to be gained from investing in it, and that there is now real systemic risk. Bill McQuaker, head of multi-asset at Henderson, recently told FE Trustnet that the only fixed income funds he holds are the more flexible strategic bond portfolios.
Bowie says he shares these concerns about the outlook for corporate credit, warning that higher inflation will mean investors in the sector will see negative real returns in the future.
"I totally agree with the negative sentiment towards corporate bonds. I have been saying for over a year that it is a very expensive asset class," he said.
"I have now moved my own personal money out of my corporates bond fund into my absolute return fund."
"The yields in corporate credit are just too low to merit the risks. We can expect a lot more quantitative easing from the world’s central banks, which will lead to future inflation."
The manager says he is most concerned about the outlook for financials and warns that investors who are buying bonds in this sector are making a real error.
"We have a lot of concerns within the sector, but more specifically in banks," he said.
"Firstly, we think they are holding a lot of problem assets. There are also huge regulatory issues surrounding their capital ratios and they are struggling to issue subordinated debt."
"Even in more stable markets like in the Netherlands, banks are going bust."
"Then of course there is the fiasco surrounding deposits in Cyprus," he said.
"Ultimately, if these companies get into trouble it will be their creditors that will be under the most pressure."
"Spreads are now back to 2007 levels and I think the risk-reward ratio within the sector makes it very unattractive," he added.
Due to his concerns, Bowie says his number-one priority is protecting investors' capital.
"We like secured bonds, so ones which are backed by a physical asset. These tend to be bonds where you basically own the company's power plant or if it’s the likes of Sainsbury’s or Tesco, their supermarket."
"These are called ABS (asset-backed securities), but more specifically we like fixed rate ABS."
"We also have a decent position in gilts. These are the conventional gilts, however, as I feel that index-linked gilts are too expensive. We don’t own them for their yield; it is more about preserving our capital."
Bowie has managed the £287.4m Ignis Corporate Bond fund with Adam Walker since December 2009.
According to FE Analytics, over this time the fund is a top-quartile performer in the IMA Sterling Corporate Bond sector, with returns of 37.27 per cent. Over that time the the Iboxx Sterling Corporate All Maturities Index has made 37.67 per cent, according to data from FE Analytics.
Performance of fund vs sector and index since Dec 2009
Source: FE Analytics
Ignis Corporate Bond is currently yielding 3.7 per cent.
Bowie says he is moving his money from that fund into his Ignis Absolute Return Credit portfolio because using alternative investment strategies is the only way to protect capital in the bond sector.
"The first thing to say about the absolute return fund is that it has zero duration which means the fund won’t be affected by rising interest rates," he said.
"It is a pair-trading fund, so we have the ability to take both long and short positions. The companies we take long positions on are ones that have an improving profile going forward and we short companies that have the reverse of that."
"One trade we have at the moment is long Jaguar Land Rover, as it is gaining market share and has its volumes and margins, and then we have shorted an Italian industrial company."
"Every time we go long we will short something else."
Ignis Absolute Return Credit is an offshore, FSA-regulated fund domiciled in Luxembourg. Bowie has run the fund alongside David Meade since its launch in July 2012. Over that time it has returned 7.03 per cent.
Performance of fund since July 2012
Source: FE Analytics
Ignis Asolute Return Credit primarily uses credit default swaps to gain access to the fixed income market and any income that the fund generates is reinvested for capital appreciation purposes.
It requires a minimum investment of £1,000 and has an OCF of 1.3 per cent.