FUND FOCUS:FIXED INTEREST

Best performer 5 years: Royal Liver Fixed Interest +30.5 %

Worst performer 5 years: Friends First European Corporate - 1.4 %

ONCE THE ultimate safe investment option, fixed interest securities have become increasingly associated with volatility and uncertainty, as a result of the troubles in the euro zone sovereign debt markets.

Away from the bond markets, though, fixed-interest products held by investors are still providing an attractive return.

The turmoil in equity markets appears to have pushed investors towards safer funds and lower-risk lower-return investment options.

For example, the latest World Wealth Report – published by Merrill Lynch Global Wealth Management and Capgemini – found that high net-worth individuals globally increased their allocation to fixed income products in 2009 to 32 per cent from about 21 per cent in 2006/07.

According to Moneymate, in the five-year period to November 25th, Irish gross domestic guaranteed funds invested in fixed-interest products returned 13.3 per cent. The best performer was Royal Liver Fixed Interest, delivering 30.5 per cent over the period. According to Royal Liver’s Michael Boyd, its Fixed Interest fund has annualised returns of 5.5 per cent per annum versus the benchmark of 3.9 per cent per annum over five years, resulting in the fund returning 10 per cent above its benchmark.

Managed externally from the UK, the fund invests in European sovereign debt – ie the government bonds of European countries such as France and Germany.

The main driver of growth has been the fund’s focus on the core euro zone states such as France and Germany, says Boyd.

“With the sovereign crisis in the euro zone afflicting the bonds issued by heavily indebted and fiscally challenged parts of Europe, the bonds issued by the core of Europe have outperformed the periphery over the past five years,” he adds.

“As such, the fund has benefited due to its bias towards core countries’ sovereign bonds. The timing of switches between the core and the periphery of Europe has also added value.”

A spokesman for Friends First, whose European corporate fund was the only fund in the Moneymate fixed-income category to deliver a negative return, said the underperformance of the fund over the last five years was because it took a major hit in 2008 as it had a significant amount of tier two capital bank debt.

The fund fell as much as 25 per cent after the collapse of Lehmann Brothers, but in the past two years had been up 11 per cent per annum, he said.