M&G’s bond fund taps inflation fear

City A.M. Reporter
Prudential’s fund management arm, M&G, is tapping into fears of resurgent inflation and appetite for bonds with an inflation-linked corporate bond fund, which it says is the first of its kind.

M&G Investments said yesterday its UK Inflation Linked Corporate Bond Fund, aimed at the retail sector, will invest in fixed interest securities “that should perform well when inflation is high or rising.” The launch is scheduled for 16 September, it said in a statement.

“Put simply, the new fund is the corporate bond equivalent of an index-linked gilt fund. It should protect the value of investors’ income and capital over the medium to long term,” said Jim Leaviss, head of M&G’s retail fixed interest team, which will run the fund with Ben Lord.

The fund launch comes at a time of concern that quantitative easing, central banks’ purchase of government bonds to inject cash into global markets after the Lehman Brothers collapse, will trigger a bout of high inflation in the medium term.

Inflation in the UK has exceeded the two per cent target consistently in the last four years, Leaviss said, but he still does not expect high inflation in the short term.

“We think there is far too much unemployment, too much overcapacity (for inflation to rise),” he said adding the fund launch was a pre-emptive strike to cope with investor demand. “We are building the fire engines in case there is a fire,” he added.

Investors have also shown appetite for fixed-income investments this summer.
The global bond sector was the best-selling asset class in July, with net retail sales of £361m.