Meanwhile, Mr Trindade believes AXA Investment Managers’ popularity in the short duration space is aided by the simple investment philosophy that underpins the funds, which is to seek to avoid the defaults and collect the coupons, by investing directly in short dated bonds.
“We want to make sure that we capture potential income while minimising default risk,” he says. “Also, one of the beauties of short duration strategies is their flexibility. In an environment where you expect interest rates to go up – as we do at the moment – this kind of strategy allows you to potentially capture higher yields over the life of the fund due to the ongoing reinvestment of maturing bonds.”
While the results of the survey may suggest a conflict between advisers opting for fixed income as a cautious investment in volatile times (42.1 per cent), while also favouring high yield options for those investors who match the risk profile (87.5 per cent), Mr Trindade suggests duration is the main source of risk in the current climate.
He says: “If you look at the duration of the sterling corporate bond market, it is around 9 years. The volatility you get from such long duration is quite high and I think investors want yield but without taking on such risk.
"Many have therefore decided that rather than taking on duration risk in their fixed income portfolio, they would rather take credit risk because they are have the potential to be better remunerated for it.”
Certainly, Mr Trindade anticipates challenging conditions ahead, which should further drive interest in to shorter duration strategies in particular and fixed income as a whole. A pick-up in economic growth across the major global economies is set to be tempered by political uncertainty and changing monetary policy.
“We have the Dutch, French and German elections coming up this year in Europe, we have the Brexit negotiations in the UK, as well as uncertainties around the Trump administration’s ability to implement its pro-growth agenda in the US,” Mr Trindade explains.
“On top of that, the European Central Bank is going to start trimming QE from April onwards and we have already seen the Bank of England end sovereign QE and it also looks likely to be done with corporate QE too by early April. The technical backdrop is less supportive than it was a year ago and the political risk is higher.
“From our perspective, we expect higher yields in the UK market, driven by reflation in the US, which is an important theme for 2017. We see that spreads are going to widen because of tight valuations, a less supportive technical backdrop, as well as the Brexit negotiations, which we expect to be very difficult.
