He warns that the sector's problems will come to a head in the next several years when the UK has to issue £300bn to £400bn in gilts that no-one wants to own. "The only way to clear them is for the Bank of England to buy them or to sell them at the market rate in order to tempt UK investors into buying bonds, which means yields need to be higher," he explained.
He says investors should forget yields of 2.5 per cent, as they will need to be 5 per cent or higher within the next couple of years, depending on how willing the Bank is to continue with QE.
The manager adds that people have misread the importance of Mark Carney’s announcement yesterday and says it is in fact the biggest change in UK inflation policy since Black Wednesday.
"We’ve fundamentally changed monetary policy in the UK. There’s a new barometer of spare capacity and that is the labour force survey," he explained. "This means that 41,000 people are now responsible for monetary policy for more than 60 million people in the UK."
He adds that Carney's "three knockout" tests for keeping interest rates at record low levels are in fact "three air punches" and that the text will either have no effect, or in the case of predicting a bubble, prove impossible to calculate.
"The MPC’s model for how inflation is created is wrong. We’ll end up keeping interest rates too low for too long, and will do more QE. This will create asset price inflation which in turn will create real wealth inflation," he warned.
He also says inflation is far more dangerous than policy makers and investors want to admit.
His answer for how to protect against these dangers is not what is expected from a bond manager. "Bonds are overvalued, you shouldn’t invest in them," he said.
"Investors need to invest in real assets such as prime property where you can increase the rents in line with inflation. Cashflows have to adjust for inflation and the most obvious real asset to be in is equities. Investors need to increase their exposure to equities. You should be well underweight bonds."
Doran says the IMA Sterling Corporate Bond sector has already suffered nine months of consecutive outflows; the total of roughly £3bn accounts for more than 5 per cent of the whole sector.
"I don’t see that turning around and it could even accelerate, which puts a lot of pressure on prices," he said.
Doran says that with so many bonds out there, if investors are selling out there are only two places the bonds can go – either back on the books of the banks or to fund managers.
However, fund managers are suffering outflows and have less capital to pick up bond issues and banks are plagued with regulation which limits the amount of leverage they can have on their balance sheets.
"It puts pressure on the banking sector to take bonds, but banks are being penalised by holding inventory on their balance sheets so they don’t want to hold debt," he said.
In order to protect his fund from the danger of everyone stampeding for the door, Doran has ramped up his cash weighting in the corporate bond fund to 12 per cent, in spite of the sector's record low yields.
"I want to be the person holding cash when everyone else is selling bonds."
Doran says this not only puts him in a position to pick up holdings at cheap valuations, it also acts as insurance should interest rates rise.
In spite of his warnings, he says investors will – and in some case should – continue to invest in bonds. His strategy is to invest in a nimble portfolio of short duration, higher yielding investment grade bonds, with a focus on capital preservation and low volatility.
"If you are going to invest in corporate bonds, my strategy is how you should do it," he added.
Doran has the performance in current markets to back up his statement. The IFDS Brown Shipley Sterling Bond fund is the best-performing fund in the IMA Sterling Corporate Bond sector over one year – picking up 12.47 per cent while the rest of the sector averaged just 4.27 per cent.
Performance of fund vs sector over 1yr
Source: FE Analytics
The four crown-rated portfolio is only £118.4m in size, which Doran says makes it more liquid in an environment where bond positions are getting more and more difficult to shift.
It is also yielding 4.5 per cent – one of the highest figures in the sector.
IFDS Brown Shipley Sterling Bond requires a minimum investment of £3,000 and has ongoing charges of 1.12 per cent