Credit crunch reverses gains of first six months

Sub-prime issues wiped out gains from high yield on many funds, with managers seeking refuge in the relative safety of large UK gilt positions

2007 was a year of two halves for funds in the UK Other Bond sector, split by the credit crunch at the height of the summer. At the start of the year, bond investors were revelling in the gains from high yield but saw this quickly unravel when banks stopped lending to each other following the US sub-prime crisis in early July. Some managers have admitted their performance has been hurt by holding too much high yield, or junk, debt but many have managed to come out the other side of the credit crunch and still produce healthy gains. Although the IMA guidelines state at least 20% of ass...