“Nearly all asset-backed securities are ‘floating rate’ instruments, meaning that the coupon they pay increases with interest rates. As a result, they are less affected by interest rate risk and tend to be much less volatile in changing rate environments.
“Because of their complexity, they also tend to offer a higher yield than traditional bonds with otherwise similar characteristics. Currently, the fund is yielding 5.5%,” Becket said.
Man GLG High Yield Opportunities
For Darius McDermott of fund store Chelsea Financial Services, selecting a fund with an excellent and experienced management team is the most important thing to consider right now.
“The Man GLG High Yield Opportunities fits the bill. Its manager Michael Scott has been in the industry for 20 years with an excellent track record in the risky high yield bond sector. Yields are higher, but so is default risk,” he said. .
The fund pays around 6%, which will help investors counter the effect of inflation. Although this is the “high yield”, which is the riskier end of the bond market, defaults are low and should remain so, according to McDermott.
Aegon Strategic Bond
Mr. McDermott also recommended the Aegon Strategic bond fund, which can invest anywhere in the bond world. His co-manager, Alex Pelteshki, said bonds would be much more volatile this year, but that was good for an active manager with a “go anywhere” approach.
“The withdrawal of central bank money printing will have a largely negative impact on bond markets, but this volatility will be a good environment to grow your money,” Peltseshki said.