SLI's McKernan: Why I am buying bank bonds

Standard Life Investments' Daniel McKernan has been buying in to bank debt in his £585m Corporate Bond fund as moves by regulators to shore up balance sheets seem set to boost prices.

The manager acknowledged corporate bond spreads have come in quite substantially in the last few years, and many investors took the opportunity to cut or exit fixed income holdings last year as equities outperformed. However McKernan, who took over the fund in December, said he still sees a clear value opportunity in banks which have lagged the rally. “One area in which we do see value is banks. They will be pushed to improve their balance sheets, which is not great from an equity perspective but great for bonds. We think that gap in terms of performance will narrow as banks do better...