Fixed Interest

Fixed interest forms an important part of a diversified portfolio that is often overlooked by private investors. You can get approximately the same return with lower risk by adding corporate bonds to your portfolio.

GAM manages it’s fixed interest allocation with the following principles in mind:

Diversification

We invest in a total of 10 different bonds. This reduces company specific risk to a comfortable level. In the unlikely event of liquidation, corporate bondholders have traditionally received 50 pence in the pound. If the bond allocation yielded 5%, that equates to a year’s worth of interest lost - not pleasant but not a disaster neither.

Risk management

Our investment managers are restricted to investing no more than 10% of the fixed interest allocation with any one company and 15% in any one sector.

Investment grade bonds

We invest predominantly in investment grade (BBB and above) bonds from stable, defensive companies which boast a high level of interest cover.

Bond Funds

GAM generally avoids bond funds, which are similar to shares in that you are reliant upon the future price to get your money back. With a straight bond the investor knows what he will receive at the outset if the bonds are held to maturity no matter what the underlying movement in interest rates. Bond fund managers have a poor record of achieving prudent outperformance and their high fees negate the pick-up in yield obtained from investing in investment grade corporate bonds. However, ETFs do have their use in obtaining exposure to markets that are otherwise difficult to access (e.g. emerging markets or high yield).