Why should I hold bonds in my portfolio?

Staci West 21/02/2024 in Fixed income

Shalin Shah briefly explains why investors should consider adding fixed income to their portfolio and the current yield offered by the Royal London Corporate Bond fund.

Watch the full interview with Shalin here.

Bonds are a great way in which we can lend to companies in a relatively safe manner in the investment grade market. The main rationale to own bonds at this stage is that currently, you get a very healthy income stream. So, to give you an example, a typical 10-year government bond yields you around 4%. But when you lend to a typical corporate, you’re getting an extra 1% per annum. That does pay you for the risk of that corporate defaulting. But historically, you need a lot less than 1% if you own a very diversified pool of corporate bonds to reduce that specific risk.

Now, when you own the Royal London Corporate Bond fund, that takes a stage further and you get a yield of around 6.5%. So, to us, we think it is a really attractive entry point compared to where we were, say, at the back end of 2021, when the typical corporate bond only yielded around 2% in the market.

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