M&G Optimal Income Fund - Taking risk where we are paid to do so
Volatility has proven to be the predominant theme in financial markets so far in 2018, but we remain positive on prospects for the global economy.
As a result, we believe corporate bond spreads can tighten further, potentially back towards levels last seen in 2004.
From a valuations perspective, we continue to prefer investment grade corporate bonds over high yield credit. This is why the fund’s average credit quality stands close to its highest level since launch.
Macroeconomic outlook: the world has normalised
In our view, monetary policy pursued by the core central banks over the past decade has worked and the world has normalised. Unemployment levels in many developed economies have fallen significantly and inflation stands above 2%. The only piece of the jigsaw not to have yet returned to ‘normal’ are interest rates, although rates in the US are not too far off.