Strategy

Bond proxy?

As a replacement or complement for longer duration bonds, listed alternative income funds look an interesting, well… alternative..
William Heathcoat Amory
Last update 09 October 2019

Disclosure – Non-substantive Research

This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour. 

Bonds still provide security for investment portfolios in certain environments. However, the fact that they offer such low yields and the fact that government policy seems to increasingly influence both equities and bonds in lock-step, means that their attraction for a balanced portfolio is rather more limited than it once was.

Alternative income funds offer high income from portfolios of assets which in many cases are themselves long-duration assets. They offer everything that bonds used to offer – a meaningful contribution to income for a traditional ‘balanced’ portfolio and useful diversification properties.

We review a sample of the 60 or so listed alternative income funds that have launched on the London Stock Exchange over the past decade. They complement traditional portfolios by providing a high income, and their share prices have so far proved to be uncorrelated with equity and bond markets.

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