Funds that invest in British Government bonds have been the best-performing investment since the coronavirus pandemic sent stock markets tumbling at the end of February, but not all alternative assets have protected investors.
The only group of funds to make investors money on average since February 24 has been those that invest in British government bonds. Traditional gilts have made investors 2.2pc as investors have fled the stock market for the security of government bonds.
Those linked to inflation, known as index-linked gilts, have lost 2.1pc of their value, while funds investing in bonds globally have lost investors 3.3pc. Although down, this is a good return when compared to the FTSE All Share – an index reflecting the entire British market – which has lost 26.5pc since the final week of February.
Funds investing in corporate bonds, which are those issued by companies, have fallen 6pc, while strategic bond funds, which can invest in all types of bonds, have lost 8pc. High-yield bonds, which have the largest payout but often lend to at-risk or smaller companies, are down 16.2pc.
Gregoire Mivelaz, of Swiss asset manager GAM, said that despite their recent outperformance, bonds were “the bargain of the century”.
Corporate bond prices have fallen dramatically as investors feared the economic impact from coronavirus could last a long time, putting many companies at risk of not paying back the loan.
Darius McDermott, of fund analyst FundCalibre, said as prices have fallen, yields have increased. This makes bonds a good option for income investors who have lost out as companies cut their dividends.
“For active managers able to discriminate between those companies that are able to survive the next few months and those that face extreme hardship and possibly bankruptcy, the opportunities have opened up nicely,” he said.
Multi-asset funds, which are made up of a mixture of bonds and stocks, have also performed well. Those with less invested in the stock market have beaten the portfolios with a higher weighting to shares, although all have outperformed the FTSE All-Share index.
Another popular area among investors in the past few years has been infrastructure investment trusts. These own assets such as toll roads and airports, for which they receive a regular income.
Investment trusts that specialise in renewable energy – building and maintaining projects such as wind farms – have lost 7.3pc on average while more broad infrastructure trusts are down 8.1pc.
But investors that had hoped property might provide a comfort have been left bitterly disappointed. On average, investment trusts investing in property have performed as poorly as or worse than stocks.
British commercial property trusts, which invest in offices and shops, are down 23pc and have struggled as businesses are unable to pay rent during this economic slump. Investors have been quick to sell, with the average share price for trusts investing in commercial properties dropping at a discount of 19pc to the actual value of the portfolio.
Meanwhile, trusts investing in property securities – other companies that deal in property – have lost 33pc, and property funds investing globally are down 26pc. Healthcare and residential property funds have held up better, but have still lost 15pc each since the coronavirus outbreak took hold.
Property funds artificially look as though they have performed well, but this is because many have suspended trading, closing their doors and locking investors inside.
Having done this, these funds have not had to recalculate the value of their portfolio as often, meaning moves have been small, although are likely to be more severe in the future.