With UK gilt yields at record lows, investors may be wary of buying government bonds. Are you ready to take on some more risk for a better yield? If so, corporate bonds might be worth considering.
Corporate bonds, in essence, are debt issued by companies to fund their operations. Investors buy these IOUs and receive an income in return. Their risk is higher than for government debt but you should be compensated for this by a higher yield. If you are new to the space, it might be hard to pick some specific company bonds to invest in and so we have selected three active funds that invest in many bonds simultaneously.
Here are some highly rated options by Morningstar analysts to consider if you want to tap this universe:
Royal London Corporate Bond – Bronze
Run by fixed-income veteran Jonathan Platt since 1999, the £1.4 billion Royal London Corporate Bond is a well-diversified fund, which contains between 250 and 350 holdings to reduce ‘idiosyncratic issuer risk’. This means Platt doesn’t like to put all his eggs in one basket, since one of them could go bust and not be able to repay its debt.
The fund is Bronze-Rated by Morningstar analyst Evangelia Gkeka. “The strategy’s performance since inception has outperformed its Morningstar Category peers on an absolute and risk-adjusted basis, but it has slightly underperformed its benchmark,” she says.
The portfolio is spit into two sections: credit-agency-rated “high-profile” bonds (at least 80%) and under-researched “low-profile” bonds, which offer a higher return since they are