Investors are selling out of government bonds in favour of property and alternative choices such as art and classic cars, according to research from Lloyds Bank Private Banking.
A survey of wealthy individuals in the UK has found that the average investor has reduced their exposure to government bonds by 16 per cent in the past year.
At the same time there has been an increase of holdings in collectables such as fine wines, with the average investment rising from £55,857 in October 2012 to £69,912 now.
Ashish Misra, head of investment policy at Lloyds Bank Private Banking, says the trend follows indications that the Bank of England may raise interest rates sooner than previously thought, causing volatility in the bond market.
'We have held a cautious outlook for gilts during the past year,' he says.
Christine Johnson, manager of the Old Mutual Monthly Income Bond fund, says she has been warning of the impact of interest-rate rises for the past three years. 'Last year a 10-year gilt was paying 2.5 per cent; the idea that people were holding gilts for their carry when it is less than inflation was laughable really,' she says.
Johnson is positioning the fund for a new environment of economic recovery, but says markets are still reluctant to be optimistic and veer away from perceived safe choices.
'Very few people are thinking what if [the economy] is ok and what if QE works? People are still talking about the triple-dip recession from March, well get over it, it never happened, we never even had a double dip, we just had a recession and now we're back in business again,' she says.
But Misra thinks a move to collectables may be a risky choice. 'Certain types of asset such as classic cars have certainly seen significant returns in recent times, but it's important to remember the risks these assets carry as well. They cost money to store, maintain and insure, and one incident such as theft or damage can significantly impact or even wipe out their value,' he warns.
Instead Johnson is looking for 'safe, short, sweet' positions and says investors should be looking to minimise their sensitivity to interest rate movements.
Subscribe to Money Observer Magazine
Be the first to receive expert investment news and analysis of shares, funds, regions and strategies we expect to deliver top returns, plus free access to the digital issues on your desktop or via the Money Observer App.Subscribe now