Managers warn fixed income 'tourists' could spark disaster for bond funds

Some of the country's top bond fund managers are increasing liquidity in their portfolios over fears a ‘shadow banking' bond market bubble buoyed by ‘tourist' investors may burst.

Contrary to the expectations of many commentators, bonds have rallied this year: the iBoxx sterling non-gilt all maturities index is up 5.3% since January. Strong returns compared with equities have convinced many investors to hold on to their fixed income portfolios rather than sell-out, confounding earlier forecasts of a great rotation. However, managers are now warning the risks of ‘tourist’ money from retail investors is forcing them to avoid higher-yielding bonds and focus on more defensive assets. Artemis Strategic Bond co-manager James Foster is one manager growing more conc...