Bonds are back! It’s been a challenging few years for fixed income markets due to interest rate hikes and market volatility, but the backdrop is easing. Here are five reasons why many investors may wish to consider adding some corporate bond funds to their overall portfolios in 2026.
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One: Attractive income
According to BlackRock, fixed income is offering some of the most attractive opportunities in more than a decade, with higher starting yields boosting the return profile. They said: “At the same time, supply-side inflation and policy uncertainty mean outcomes depend less on broad market exposure and more on precision.”
Chris Bowie, lead manager of the TwentyFour Corporate Bond fund, looks to achieve the highest possible income with the least amount of volatility. He uses his proprietary quant tool, known as the ‘Observatory System’, which is designed to find the best risk-adjusted opportunities. A maximum of 100 positions will be held at any one time. Currently, he has a broad split of exposures with banks and investment grade corporates each accounting for around 26% of the fund. His favoured ratings are BBB names*.
Two: Diversification
Corporate bonds are a key part of diversified portfolios. The ideal split depends on your investment needs, attitude to risk, and existing holdings. For example, conservative investors may have around 60% fixed income exposure, with more balanced approaches coming in at 40%. However, the appropriate allocation will always depend on an investor’s objectives and attitude to risk.
We like the flexible mandate of the BlackRock Corporate Bond fund, which has enjoyed excellent performance since Ben Edwards became lead manager in 2015. A huge team of fixed income specialists help him uncover the best ideas. Most of the bonds chosen are investment grade with relatively high credit ratings**. This means they’re less likely to default. Once a company is identified as a potential investment, the team carry out further analysis to determine which of its bonds offer the best value.
Three: Less risk than equities
Bonds have historically been less risky than equities. That makes them an appealing option for many investors, particularly those who are more risk-averse. The M&G Corporate Bond fund, managed by Richard Woolnough and Ben Lord, has just over 70% in investment grade corporate bonds**.
However, not all high yield areas are as risky as many people fear, according to Rhys Davies, fixed income manager at Invesco. He told us recently: “You can have bonds that are issued by very good-quality companies that are rated as high yield but the chances of them actually defaulting are still relatively low.”
The good news is there are plenty of options for those keen to embrace more risk. Man High Yield Opportunities, for example, is an unconstrained, concentrated global high yield bond fund.
Four: High levels of flexibility
Strategic bonds are the ideal solution for investors who aren’t sure which area of the fixed income market meets their needs. However, the approaches taken will differ. We like GAM Star Credit Opportunities, which invests in the junior debt of investment grade companies. This strikes a balance between good income and a high-quality portfolio.
The ability of strategic bond funds to switch focus in response to the international backdrop is useful. This makes funds such as Nomura Global Dynamic Bond attractive. Its manager, Dickie Hodges, recently told us investors need to become comfortable with geopolitical uncertainty, as it is unlikely to fade anytime soon
Five: International exposure
Your fixed income exposure can be tailored to meet your needs. UK-focused bond funds, for example, can be held alongside those with more of an international slant. We like M&G Emerging Markets Bond, which has exposure to countries such as South Africa, Mexico, Brazil and Malaysia**.
According to their latest update, the managers found plenty of attractive opportunities in June, including Development Bank of Mongolia and healthcare business Burjeel Holdings**. “We were more active buying corporate bonds and bought new issues from energy businesses Green Palm Bidco and Empresa Distribuidora,” they wrote.
And finally, you can also find global funds with a green focus. The Rathbone Greenbank Global Sustainable Bond fund follows themes aligned with the UN Sustainable Development Goals.
