More warnings on bond funds have arisen now that some advisers are recommending investors who hold bonds to consider switching over to other assets or at least to flexible fixed income funds, before an expected rise in interest rates. Taking into account the UK’s scenario, many economists believe now that the improving economic outlook in the UK may very well involve a rise in interest rates next year, which would lead to a rise in bonds as well. The consequent fall in prices would lead to a loss of capital for bondholders.
Moving into strategic bond funds or absolute return funds can also be an option for those investors who do not want to abandon bonds completely. Strategic bond funds provide the flexibility to invest across a wide range of securities, from shorter-dated bonds to emerging market debt and even a small amount in equities.
Please read here the complete Financial Times’ article.