Bond fund mania through Q1 despite 'poor performance' - Cofunds

This level of sales is very high according to Michelle Woodburn, business development manager at Cofunds, who said even when property funds were highly popular, at best they thy attracted around 20 per cent of net sales. Gilt fund sales also continued to remain relatively strong with this sector taking 5.72 per cent of sales, and it is the fastest growing sector on the platform in relative terms.

The top three selling funds were bond funds - M&G Corporate Bond A, Invesco Perpetual Corporate Bond and M&G Strategic Corporate Bond. And out of the top twenty selling funds over the first quarter five of these were bond funds.

However, Woodburn said that the IMA Sterling corporate bond fund sector may not be able to sustain its 39 per cent share of sales following a poor performance for the sector over the first quarter. She said that over this period only 10 out of 90 funds in the sector had made positive returns so financial advisers may steer their clients away from these.

Darius McDermott, managing director at discount stock broker Chelsea Financial Services, said that historically investors always opt for safer assets during times of market turmoil, in particular corporate bonds. He noted that the best performing corporate bonds funds have been the ones which have less exposure to financials and credit risk.

But he also said institutional investors are now looking to buy riskier bond assets though are having difficulty in doing this because the holders of these do not want to sell but wait for the recovery.

McDermott added that corporate bond funds are not necessarily the best option as there remain a number of questions about these, an issue raised by other advisers, and said that with his own clients he continues to highlight the advantages of equities, which at the moment are good value. He said: “I do not think equity markets are about to race away but when they do equities will become more popular on Cofunds.”

McDermott also thinks that if the macro-economic situation in the UK continues to be bad advisers and their clients are likely to allocate away from UK Gilts. Woodburn notes that sales of UK Gilt funds are in any case dominated by one fund, the M&G Gilt & Fixed Interest Income which is generating around generating three times as many sales as the second most popular fund, Allianz PIMCO Gilt Yield.

Cofunds does not currently have many index linked Gilt funds on its platform as the annual management charge on these is low, but is considering introducing more due increased interest from clients. Although RPI inflation is at its lowest level since 1960 falling to -0.4 per cent in March, some investors are already preparing for the likely rise in inflation in the coming years, following the government’s quantitative easing measures.

As a result of the popularity of bond funds the dominant fund groups were M&G with its funds accounting for 18.42 per cent of fund manager sales during the first quarter, followed by Invesco Perpetual with 16.74 per cent.