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Bonds continue to confound sceptics, remaining one of the most bought and best-performing asset classes this year.
Yet interest rates, upon which bond prices and yields are based, are near record lows, meaning investors are being paid very little to lend while paying a premium to do so.
Although bonds do still offer diversification to global stock markets – as when stocks fall investors tend to buy bonds instead – the derisory income being paid has turned many off the asset class.
No one knows when stock markets will fall. If stocks continue to perform well, bonds will be a relatively poor investment. So what are the alternatives for investors who don’t want to hold stocks or bonds?
Investment trusts
There are a number of investment companies that specialise in asset classes that small private investors typically do not have access to. Kelly Prior of BMO Global Asset Management, said SQN Asset Finance is an example that is offering investors something genuinely different.
Managed by Neil Roberts and Jeremaih Silkowski, the trust leases out equipment to small and medium-sized companies, including medical supplies, marine technology, solar panels and helicopters.
She said: “There are more lenders in the area than there has been but the trust’s mix of lending essential items to reliable businesses that use them for technological advances brings ever more interesting investment opportunities.”
The trust aims to pay investors a monthly dividend, with the overall yield for the year of 7pc, significantly higher than can be achieved from most bond funds.
Absolute return funds
Another option for investors is the much-maligned "absolute return" sector. Although it has failed to live up to its name, with many funds making losses over various time frames, these funds can still play a role for investors.
Daniel Adams of Psigma Investment Management, said he uses the Jupiter Absolute Return fund in the portfolios he manages.
The fund aims to make investors more than 3pc over any three-year period, although it has lost investors more than 7pc over the past three years.
Managed by James Clunie, it invests in stocks, but also uses "shorting" – selling shares to buy them back at a set date. If the price falls, the fund makes a profit.
Mr Adams admitted that the recent performance of the fund has been poor, but noted that the manager has deliberately bought areas of the market that have performed poorly and shorted areas that have done well in anticipation of a reversal.
So far this has not materialised, but if it does he said the fund should make investors “double-digit returns”. If it does not, Mr Adams said investors should expect losses to be no more than 4 or 5pc.
Gold
Although gold has performed very well in 2019, up 21.6pc to £1,224 an ounce it remains one of the most popular “safe havens” among investors.
The precious metal is seen as a store of value when markets are falling. Before the financial crisis of 2008, people tended to hold government bonds, as they yielded around 4pc per year.
Since then, record-low interest rates have pushed investors towards gold instead. As with bonds, part of the appeal is supposedly low correlation to the movement of stock markets.
Chris Rush of asset manager Iboss said gold remained a good “diversifying asset”.
His choice is the Investec Global Gold fund managed by George Cheveley. It invests in gold miners that are “more sensitive to movements in the price of physical gold”.
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