Wise move into index-linked government debt separates Strategic Gilt from its peers

City Financial Strategic Gilt fund manager Ian Williams' strong recent move into index-linked government debt propelled his vehicle to the IMA Gilt sector's only positive return in January.

Williams' £43m fund climbed 0.47% in the month, despite the sector falling 5.13%, according to Lipper. Over a year to 4 February, the fund is up 10.1%, over 4% higher than the sector average.

Williams attributes the solid performance to a major shift from conventional to index-linked gilts during November. The move paid off in December, with eight-year index-linked gilts returning over 11% over the month.

Despite the majority of current investor interest centered on corporate bonds, Williams believes the index-linked end of the gilt market could prove to be the success story of the year.

"It is unlikely that corporate bonds will be the best performing asset class," Williams says.

"If the recession continues, gilts will almost certainly outperform corporate bonds and if the policy of printing money is implemented and this spurs inflation, then index-linked gilts will be best suited to outperform corporate bonds.

"In this uncertain climate, locking in a set coupon that is protected from inflation and at a price that is cheap, in historical terms, seems like a savvy move."

"In the less likely event of an economic recovery within the short-term, equities would outperform corporate bonds."

Categories: Fixed Income | Investment

Search similar stories on adviserhound