Monday Club – 17/11/25: Your weekly Wealthwise digest

Investment round-up

Retirement age reaches record high

The average age at which men and women stopped working was around 66 years and 65 years respectively – the highest on record, according to the Office of National Statistics. The number of 65-year-olds who are ‘economically inactive’ has also fallen over the past decade – from 72% in 2015 to 56% this year.

Invesco and Franklin Templeton trusts to merge

The board of Invesco Global Equity Income trust has reached an agreement to merge with Franklin Global following consultation with shareholders. The Invesco trust would expand to up to £445m of net assets, depending on how many shareholders opt for cash.

Smith supports Smithson rollover

Terry Smith, CEO of the management group of the Smithson investment trust, says activist investor Saba Capital Management was “right” to push for a rollover given the persistent discount. The investment trust will now convert to an open-ended fund.

Dimensional’s active ETFs list in Europe

Two of Dimensional’s active UCITS exchange traded funds have listed in Europe – the Global Core Equity UCITS ETF and the Global Targeted Value UCITS ETF are listed in sterling and US dollars in London, and in euros in Frankfurt.

Annuity sales hit peak

Pension annuity sales increased by 24% last year to reach a 10-year peak of 89,600, according to the Association of British Insurers. The figure is a post-pension freedoms record for annuities. Annuity rates reached 7.65% in September, according to Standard Life.

In focus: Dicing with debt

Fixed income markets may have delivered some shocks in recent years but there have always been certain constants – not least that corporate bonds trade at a higher spread than their government peers. Last month, however, Microsoft’s corporate bonds briefly traded at a lower yield than US treasuries, begging the question, At a time of burgeoning government debt and erratic policymaking, should investors be steeling themselves for another new fixed income phenomenon in the year ahead?

In theory, of course, government bonds should always trade at a lower yield than corporate bonds. Given governments can print their own money, control their own currencies and raise taxes, their debt should have little chance of default. Investors have, however, started to reappraise the relative risks of corporate and government balance sheets – and bond markets have started to price in an alternative scenario, with credit spreads dropping to new lows.

For plenty of investors, these low and declining spreads are a sign to avoid the credit market. “There’s very little margin of error here,” points out David Coombs, multi-asset manager at Rathbones.

“Is it because many companies seem to have better balance sheets than governments? Or is it because investors are pushing bond prices ever higher as they try to lock in yields before expected rate cuts? We prefer to hold shares rather than equity-like fixed income – especially those with high cashflow and little debt.”

Fidelity Strategic Bond fund manager Mike Riddell is also avoiding corporate debt, reasoning: “Credit spreads are so narrow that there is hardly any room for further tightening. If anything goes wrong in the world, spreads could widen significantly.”

For his part, Huw Davies, investment manager, fixed income, absolute return at Jupiter Asset Management, says: “Credit is, on a spread basis at least, very expensive indeed – in fact, the most expensive we have seen for a long period of time.

“One of the things that has supported credit markets is the absolute level of yield. That has maintained inflows – but, also, volatility has been very low and investors have been able to earn that carry. Still, it is plainly a risk to the market. We are seeing an AI and global trade environment where there are a lot of risks and yet, at the moment, there seems very little risk priced in. Credit markets do look vulnerable.”

Others, however, are quick to point out that, objectively, corporate debt appears to be a better option than government debt, with Alexander Pelteshki, portfolio manager, fixed income at Aegon Asset Management, noting: “There are fiscal pressures building across most of the major markets and they are unlikely to go away for obvious political reasons – politicians don’t get elected when they withdraw spending. As a result, we are much happier lending to corporate balance sheets than those of governments. We do not see governments reining in fiscal deficits, which are quite extraordinary.”

Pelteshki goes on to argue that, even with the extra revenues from tariffs, the US budget deficit is still 6% to 7% a year at a time when the economy is growing rapidly. “This is unprecedented,” he continues. “It is rare to see this large fiscal spending in non-recessionary environments. When we see spending patterns like these, it makes us nervous.”

He says he has more confidence lending to Apple for 30 years, than the US government for 30 years, adding: “We can see a situation further down the line where lending to the US or UK government for the long-term is riskier than lending to certain corporates. We have no evidence to give us confidence to the contrary.”

The problem is not necessarily that the US government defaults – more that markets demand an ever-higher yield, which pushes prices lower and makes treasuries a bad investment.

There are also technical arguments that support corporates over governments – for example, if governments are to sustain their current debt levels, bond markets will need to digest an increasingly enormous amount of debt. Businesses have more choice on how and when they issue debt and the likes of Microsoft have strong balance sheets and only need to issue debt strategically. This is likely to prevent a supply glut.

The final consideration is one of trustworthiness. Continuing to use Microsoft as an example, it cannot act unilaterally – it is held to account by a board, by shareholders and by its customers. Yes – there should be similar checks and balances on the US economy, but they have proved increasingly ineffective in the face of the current administration. Recent challenges to Federal Reserve independence have given investors pause for thought.

Even so, arguments the other way remain – for example, if a government were to narrow the deficit, it would be good for its credit rating, but it could be bad for the economy and corporate debt. Plus it may choose to do this by taxing the corporate sector – though, of course, many companies issuing debt are global, mobile and generally not in thrall to the whimsy of a single government.

The influence of AI is also complicating investment considerations. As Mark Nash, investment manager, fixed income, absolute return at Jupiter Asset Management, says: “If a company replaces a worker with AI – and the economy can’t give that worker a job elsewhere – yes, the company will become more productive, but the economy won’t. The economy’s outlook won’t get better unless you can rehome that worker in another job.”

If Trump manages to boost the manufacturing sector, that is where the workers may go but it will take time and there is little evidence for it yet. In the meantime, those jobless workers will put more pressure on government balance sheets.

Nevertheless, reckons Nash, there is still an argument that falling rates will boost government bonds over corporates. “Policy rates are important at the front end,” he argues. “As the all-in rates come down as they cut rates, credit is going to get more volatile because it loses that support. But fiscal risk will also start to subside. So sovereign bonds could begin to outperform versus credit.”

For the time being, the idea corporate bonds should trade at a lower yield than government bonds is an interesting enough thought experiment – but one that offers relatively few examples in practice. That said, it has been commonplace in emerging economies where trust in government policymaking has tended to be lower – and it is not impossible it could start to happen at the margins in developed markets.

Read more on this from Jupiter here