OMAM's Cowley warns on gilt funds

Old Mutual Asset Managers' bond fund manager Stewart Cowley has warned investors in gilt funds face major headwinds in 2012, after falls in yields to record lows left them with little protection from coupons if prices start to come down.

After a storming run in 2011 which left most gilt prices at or near record highs, Cowley said corresponding falls in yields meant investors were now being paid such a small amount of income it would not compensate them for any price falls, leaving them at risk of an overall loss. Gilts were one of the best performing asset classes of 2011, with the average return from the IMA UK Gilt sector at 13.08%, according to Morningstar. This made it the second best sector in 2011, behind index-linked gilts, but after such a run Cowley warned gilts are now a far more risky investment. Cowley,...