Fund in focus - Funds - The Share Centre

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Fund in focus

Each week, our analysts put the spotlight on a fund from our Platinum 120 range of quality funds, which they believe has strong management and performance prospects for the medium/long term (generally 3+ years). Each fund is given a risk rating and is classified by IMA Sector to give you a broad idea of its objectives or underlying assets. This week's Fund in focus is...

M&G Index-Linked Bond I Fund Inc


  FundIMA SectorCurrent
price (pence)
Our risk ratingAdd to watchlist?
 M&G Index-Linked Bond I IncIA UK Index - Linked Gilts1496.4900 L2Watch
Recommended at p on 24 February 2017

Find out more about this fund.

Our view

Index Linked Bonds

Index linked bonds are debt issues designed to provide protection against inflation to help income distributions maintain a real rate of return.

Looking ahead, there is a consensus for inflation to pick up supported by the lag effect of rising oil and food prices in 2016. In the UK that expectation is enhanced by the effect Brexit has had on weakening Sterling. While a weaker currency has been good for UK exporters it has had the opposite impact on imports, pushing prices up, costing consumers and business more pounds to buy those good from overseas. In a period where prices rise conventional bonds lose their purchasing power whereas Index Linked bond should not. Gold, equities and property, albeit at the cost of taking on more risk, have also proved a hedge against inflation.


Fund position

The manager operates a very concentrated portfolio of UK Government index linked investment in part due to the number of issues available. Currently (Feb 2017) c. 73% of the fund forms the top 10 of the fund holdings. 97% of the bonds held in the fund are made up of government issues and 2% is held in corporate bonds.


About the fund

M&G have long been respected for their bond funds and this fund is a prime example of another one of their key bond funds, managed by Ben Lord and ably supported by the Head of Fixed Income at M&G, Jim Leaviss.

The fund is designed to provide a level of protection from the effects of inflation by generating a total return consistent with investment in index-linked bonds over a rolling five-year period or longer. The fund invests mainly in inflation-linked bonds issued by the UK government. Up to 20% of the portfolio may be invested in index-linked government-guaranteed corporate bonds or foreign government bonds.

Investors should note that the fund may invest in non-sterling denominated securities, however, to minimise the currency risk, these will be hedged back as well as other alternative assets such as derivatives.


Observations

For those investors concerned about the real purchasing power of money and wishing to ensure that the time value of their money does not erode through the effects of inflation then this investment provides some of that assurance.

Overall, this fund is suited to those investors wishing to add diversification to their portfolio in the shape of protection against inflation, but without any significant risk.

In times of low inflation / deflation, the Index linked bond market is likely to underperform.



Comment last reviewed Feb 2017.

Author: Author: Sheridan Admans, Investment Research Manager

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