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First published in Great Britain in 2013
Copyright © Harriman House Ltd
The right of Mark Glowrey to be identified as the author has been asserted in accordance with the Copyright, Designs and Patents Act 1988.
9780857193100
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A CIP catalogue record for this book can be obtained from the British Library.
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Acknowledgements
I would like to thank my publisher, Harriman House, for their patience in waiting for this much-delayed book.
A debt of gratitude also goes to Michael Dyson, then working at Barclays Capital, and Anthony “Bonzo” Lorenzo of Winterflood Securities who stepped up to the plate in 2006 to provide the initial sponsorship for the www.fixedincomeinvestor.co.uk website. This sponsorship in turn was generously continued by the bond teams at BARCAP (Will Hall & Gurnaik Johal) and Wins (Oliver Brown and Stacey Parsons), and in due course by my own employer Canaccord Genuity. I would also like to thank Chris Martin and the eCube technology team for creating the website.
Finally, thank you to Barry, Oliver, Mike and all the contributors to this book, and of course my wife Corina, without whose support it would not have been possible.
About the Author
Mark Glowrey is Head of Retail Bond Sales at Canaccord Genuity. Prior to this, he spent over a decade as a director of Stockcube Research Limited, a leading independent analysis company. Mark has over twenty-five years’ experience of trading securities and advising institutional customers, starting his career as a dealer on the floor of the London Stock Exchange in the early 1980s before moving on to specialise in fixed income securities and treasury products. In 2005, he launched Fixed Income Investor (www.fixedincomeinvestor.co.uk), a resource for private investors in the sterling fixed income market. Mark has also contributed to many well-known investment websites and publications over the years including the Investors Chronicle.
In his spare time, he can generally be found on the water, up a hill or occasionally under a paraglider.
The views and opinions expressed in this book are those of the author, and not those of his employers.
Visit Mark Glowrey’s author page at: www.harriman-house.com/authors/profile/markglowrey/17309
Foreword by Dr Stephen Barber
This is a timely book. Bonds have been rather overlooked by investors in recent years but this is changing as portfolio strategies adapt to our evolving needs and the rapid alterations in global markets. Like many readers, I have accumulated a fair collection of investment books on my shelves but none of them offer a thorough guide to bonds and fixed income instruments. I suppose they have not been seen as particularly sexy: after all, notwithstanding the Eurozone sovereign debt crisis, it is the equity markets which tend to make the news with their “thrills and spills” as the author puts it. And yet, increasingly, bonds are once again playing a crucial role in our investment planning, whatever our objectives might be.
Almost all portfolios can find a place for fixed income, if only as an alternative to cash. After all, returns are usually better, risk can be managed and it is possible to buy liquid bonds which can be sold when funds are required. But there is no need to stop there. Traditional asset allocation is all about balancing equities with bonds and the inclusion of fixed income is a tried and tested way of reducing portfolio volatility. With so much emphasis on equity returns, reducing volatility has been the primary function of fixed income. This is the life stages approach to investment management where we accept greater risk when younger but attempt to reduce volatility, and therefore uncertainty, as retirement approaches. As such, those with a longer investment horizon have been attracted primarily to shares. Portfolios must always be adaptable and over time this changes. During the decade or so prior to retirement, a rebalancing should take place which re-allocates assets away from equities and towards the dependability of bonds. During such an investment stage, and beyond into retirement, the predictability of bonds provide for precisely the sort of returns that are demanded. It is old advice but good advice.
There is, however, much more to bonds than simply managing portfolio volatility. Mark Glowrey will surprise many readers of this book when he demonstrates that in historical analysis, the performance of bonds compares really rather favourably to equities. Even pedestrian British government bonds, gilts, have outperformed UK shares over the first decade of this new century. It is the sort of statistic to make all investors reappraise the merits of fixed income. Bonds are not only about lowering risk, they can also be about long term growth and even speculative investments.
Profits are, not unreasonably, what most investors are interested in. But profit has come to mean capital gains. However, even when it comes to shares, most of our longer term returns will actually derive from income rather than capital growth. As such it is one of those mindsets as investors we must learn to shake. Total returns of income combined with capital are what count and this is what bonds and fixed income can offer. For the longer term, more passive investor, income is perhaps more readily available from these products than great capital gains. Also, depending on one’s tax position, this can be eaten up by income tax. But it is worth considering that you are not liable for capital gains tax on profits from gilts and increasingly tax efficient wrappers are being employed to manage taxation.
The combination of Individual Savings Accounts (ISAs) and Self invested Personal Pensions (SIPPs) have helped to make investment portfolios as tax efficient as possible. Within these wrappers, investment choice is relatively free, profits can be taken CGT free and no additional income tax is due. This makes the selection of bonds and other fixed income products an even more attractive proposition and means that investors need not distinguish between income and capital returns.
Not only is this book timely,
