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M&G UK Inflation Linked Corporate Bond offers value

M&G UK Inflation Linked Corporate Bond Fund offers an alternative to UK inflation-linked government bonds.
March 27, 2012

UK inflation-linked gilts are expensive, so corporate inflation-linked bonds may offer better value. Private investors can access these via funds such as M&G UK Inflation Linked Corporate Bond Fund, run by M&G's head of retail fixed interest, Jim Leaviss, and credit specialist Ben Lord.

105.21p

M&G UK Inflation Linked Corporate Bond Fund is just two years old, but M&G's longer-running bond funds have very strong track records.

The fund aims to protect the value of capital and income from inflation via a return consistent with or greater than inflation, as measured by the Consumer Prices Index (CPI), over the medium to long term. The fund should do well when inflation is high or rising, although it may, at times, have a different return profile to mainstream corporate bonds. Its duration profile is much shorter than other corporate bonds or index-linked gilt funds, which helps protect it from rising interest rates.

The fund mainly invests in investment-grade corporate bonds such as inflation-linked floating rate notes and asset-backed securities, but can also use derivatives. Investment-grade bonds are those rated as triple B or above and considered the least likely to default.

Recent additions include conventional bonds issued by retailer John Lewis, which pay a coupon of 8.375 per cent and mature in April 2019. The fund managers say this is an attractive way to access the credit rally.

 

M&G UK INFLATION LINKED CORPORATE BOND A Inc (GB00B3WZMB82)
PRICE105.21pMINIMUM INVESTMENT£500
IMA SECTORSterling Strategic BondTOTAL EXPENSE RATIO1.17%
FUND TYPE Oeic1 YEAR PERFORMANCE2.58%
FUND SIZE£346.52m6 MTH PERFORMANCE3.92%
No OF ISSUERS108*3 MTH PERFORMANCE2.76%
SET UP DATE16-Sep-10YIELD1.08%
MANAGER START DATE16-Sep-10MORE DETAILSwww.mandg.co.uk

Source: Morningstar, *M&G.

Performance data as at 26 March 2012.

 

Top five issuers as at 29 February 2012

Tesco4.4
Toyota Motor3.7
Severn River Crossing3.2
National Grid2.2
Rabobank2.1

 

Credit rating breakdown

AAA11.2
AA9.4
A42.7
BBB27.60
BB3.20
B2.60
No rating1.9
Cash1.4