It would seem that fixed incomes are out of favour at the moment, with local authorities pension fund trustees preferring alternative assets and overseas equities.
A survey conducted by Fidelity International found that three-quarters of public retirement funds in the United Kingdom hold less than 20 per cent of their investments in bonds compared with over half three years ago.
Our view
It is expected that this decline will continue and over the next year or so as one in ten local authorities expect to decrease their bond portfolios.
Fixed interest stocks lose their attraction as interest rates rise. In simple terms, the return is fixed when compared to a rising interest rate. This means their capital demand falls.
We suspect though that now is the right time to buy UK fixed interest stock, not sell as we expect longer term interest rates to fall mean fixed interest stock will rise again.
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