Forbidden fruit

Fund managers are in the grip of a terrible dilemma: while they are perfectly aware of the risks involved in buying unrated bonds – indeed mandates prevent many investors from dabbling – the juicy returns are just too tempting for many, as Philip Moore reports

Anybody waiting for investors to reach anything approaching a consensus view on the thorny issue of unrated bonds would be well advised not to hold their breath.

Admittedly Karl Bergqwist, head of credit research at Gartmore Investment Management, speaks for a number of fund managers when he delivers his uncompromising verdict on unrated paper. “Unrated bonds are fundamentally bad for the market,” he says. “It is a worrying and unfortunate trend that we have seen so many unrated bonds coming to