Fixed income investing

Fixed income or fixed interest investments relate to instruments issued by governments or corporates as an effective way for them to borrow money – i.e. they are a source of credit. They are designed to be a lower-risk way to generate a set amount of annual income.

Fixed income investments include:

• Government bonds – government issued debt with a set redemption date and fixed interest. Sometimes referred to as ‘sovereign debt’ internationally or as ‘gilts’ in the UK
• Corporate bonds – loans issued by corporate entities with solid balance sheets. Investors receive annual payments (coupons) and get their capital back at the end of the investment term (as long as the company does not default)
• International corporate bonds – debt issued internationally, offering attractive long-term opportunities.

Yes, fixed income investments are considered to be lower risk than many other forms of investment.

Bonds, historically, have a low correlation to equity performance, so can help to provide a more stable income stream in times of volatility. While fixed income investments aren’t without risk, our specialists mitigate risk further by selecting good quality fixed income funds and short-dated bonds.

1. To diversify your portfolio to reduce the volatility of returns (and thereby the risk) by investing across different asset classes
2. To generate a steady income stream
3. To produce capital gains (potentially)
4. For a more certain return of capital
5. To use the fixed annual income to offset fixed liabilities

There are various different ways to generate fixed income from your investment portfolio. As we have deep expertise and experience in fixed income investing and can access a wide range of bonds and gilts directly or via funds, we can use different approaches based on your individual income requirements:

• Bond ladders: A portfolio of bonds maturing regularly, for instance from two to 12 years; as the shorter-dated bonds redeem, proceeds are reinvested longer term
• Cash flow modelling: A portfolio of bonds providing regular income and certainty of capital return aligned to your schedule of known monthly outgoings; this allows you to manage your annual income needs
• Discount investing/grossing up return: Investing in deeply ‘discounted to par’ corporate bonds or gilts, where a large part of the total yield to redemption is capital gain (which is generally tax free for most UK individuals investing in qualifying corporate bonds).
• For example, the UK Treasury Gilt 0.125% with a maturity date of 31 January 2026 is trading at £94.98 and will yield c.3.63%; or the UK Treasury Gilt 0.125% to be redeemed on 31 January 2028 is trading at £88.86 and will yield c.3.55%.

How much you invest in fixed income depends on your individual circumstances and financial goals. Our Investment Managers can recommend the best way forward for you based on your situation. For our Fixed Interest Portfolio Service, there is a minimum investment of £50,000.

Now could be a good time to incorporate fixed income investing into your investment strategy, particularly if you’re starting to plan for retirement and looking for more stable returns.

Since 2022, core bond markets have experienced some of the greatest annual falls in modern history. In some cases, bond prices fell so far that their market price is now well below their face value, creating the potential for attractive long-term total returns.

To find out more, watch our summer investment webinar, in which Thomas Becket, from our Chief Investment Office, discusses why fixed income investing could still be an attractive alternative right now.