Bonds are debt that must be repaid at a predefined time. They may be issued by governments, companies, and other organisations as a way to borrow money. They typically also pay income, via a set or fixed interest rate, called a coupon. Because of this they are commonly dubbed fixed income assets, in contrast to shares where the potential income – in the form of redistributed profits – is not fixed since the company is not obliged to pay a fixed dividend.
Bonds, crucially, are a tradeable form of debt, meaning that ownership can change hands after a bond is first issued and before it has to be repaid. The conventional wisdom is that bonds tend to be lower risk investments than shares, in part because creditors (including bondholders) have priority when it comes to getting their money back if a company goes bust, unlike shareholders.
That’s not to say that one company’s bonds are necessarily less risky than a different company’s shares; a bond issued by a property developer in a provincial city of an emerging market may not be safer than the shares of a company that controls an indispensable transport network in an industrialised country. Some issuers, governments even, are occasionally unable to repay their bonds (this is known as defaulting). In such cases, investors can lose all their money, so fund managers do a lot of research to determine a bond issuer’s ability to make its coupon payments. The ease with which individual bond issuers can repay debt varies hugely and requires careful analysis. Bond contract lengths – maturities – also differ, which can affect how sensitive bonds are to interest rate changes.
At Jupiter, we offer funds in both developed and emerging markets to suit a range of investment goals and appetites for risk. Our fund managers scour the globe in search of the best bond investment opportunities. We invest in a mix of corporate and government bonds, with different levels of creditworthiness, across a range of maturities, even in bonds that can be converted into company shares under certain circumstances. Our fixed income capabilities include global multi-sector bonds, corporate bonds, emerging market debt, and financials contingent capital bonds (known as “CoCos”).