Changing Market Conditions & Corporate Bonds

In this modern age of information, it is easy to become ambivalent of the ever growing numbers of financial headlines and articles that skip across your computer and iPod every day. As an example, we have all lived and breathed the recession and financial crisis’s that have affected the very core of our financial understanding and acumen over the last 5 years. It is this last point that made me stop and think. The BBC headlined ‘Reflecting on the credit crunch five years on’ on the 09th August 2012, confirming the start of the Credit Crunch on the same day in summer 2007 and some were advising that ‘a correction in the markets was expected, not “a total meltdown”’.
Was this a correct statement to make? Looking back over what has been a highly turbulent economic period, and reading some of the headlines from the media, you would think it was wrong. However, to challenge this, I would ask the following question:
Is the world and its economic areas/opportunities better or worse for this 5 year crisis/recession?
I think the answer is neither. It is just different.
Most individual investment areas have seen significant changes in fortune over the last 5 years. Examples could range from deposit/cash fund returns seeing now increasing returns against a backdrop of falling Bank of England Base Rates. The Commercial Property sector seeing a negative (and very rapid) capital value correction at the end of 2008 and recently, questions in the press over the continued liquidity in the Corporate Bond market.
Looking at the Corporate Bond market further, I am not overly concerned about increased liquidity problems in the corporate bond market. That is because I am conscious that liquidity comes and goes – it is a feature of the capital markets and it is especially a feature of the corporate bond market – and I factor these roving liquidity conditions into my expectations.
Of course there are debt instruments that are associated with high levels of liquidity, even in the very worst of financial markets. Those are the sovereign bonds of the major nations, including gilts. If you’ve reduced your exposure heavily here in favour of corporate bonds then, in these circumstances, I would have some concerns. I must stress though, I am not forecasting any imminent problems with the corporate bond market in isolation.
When reviewing an individual’s asset allocation of their investments and pensions, it is important to understand that Investors should hold risky assets only in the proportions that they would be comfortable to hold for the duration of a significant downturn. We can help you understand this process to allow you to invest to a risk level that suits you. Clients should not be holding risky assets in the hope that they’re not going to be risky while they hold them. If the aggregated risk and return characteristics of an investor’s portfolio are suitable for the individual investor, then Corporate Bonds could continue to remain a suitable investment vehicle.
Past performance is not a guarantee of future performance
At Chapters Financial, we have been successfully offering a fee-based model for over 5 years now and plan to continue to offer high quality independent financial advice into the future for both our existing clients and our new enquirers. Because each consumer is different, as is their financial planning needs, no individual advice has been provided in this Blog.
Keith G Churchouse, Chartered Financial Planner
Director, Chapters Financial Limited

Chapters Financial Limited is Authorised and Regulated by the Financial Services Authority. Number 402899