Risk can be greatly reduced by concentrating on only a few holdings.
Fixed interest forms an important part of a diversified portfolio that is often overlooked by retail investors. You can get approximately the same return with lower risk by adding corporate bonds to your portfolio. In addition to investing in bond funds (investment trusts & ETFs), GAM purchases direct bonds. GAM selects these with the following principles in mind:
Our investment managers are restricted to investing no more than 10% of the fixed interest allocation with any one company. 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.
Our investment managers are restricted to investing no more than 15% of the fixed interest allocation in any one sector.
We invest predominantly in listed bonds from stable, profitable companies which boast a high level of interest cover.