Corporate bonds can be an attractive investment and a source of diversification within portfolios. Yet with many central banks across the developed world adopting a 'loose monetary policy' due to the Covid-19 pandemic, yields remain low.
We have been reviewing our exposure to corporate bonds and last week took an action to reduce it within the Omnis Managed Portfolio Service. These portfolios are already overweight equities in anticipation of the moderate reflation scenario playing out, so we therefore placed the proceeds of the trade in cash and alternatives.
In light of this trade, I have written this Investment Insights piece to look at how corporate bonds work and to explore possible scenarios and expectations over the next 12-18 months.
As you all probably know, trying to understand how bonds work and all the related terminology can be a minefield for many, so I have tried to keep things as simple as feasibly possible.