The pair say there has been no sign of a great rotation into bonds, but rather a flow of money into both equities and fixed interest from cash, as investors respond to massive quantitative easing programmes in a logical fashion.
David Roberts, co-head of fixed interest, said: "What has happened in 2013 is many investors are starting to understand the real impact of QE, which is almost all asset classes except cash are likely to benefit."
"It seems that investors are continuing to support bonds as an asset class and take money out of cash to support investment in higher-risk assets, including the bond market."
"One of the key drivers for all markets over the past few weeks has been the activity of the Bank of Japan providing significant monetary stimulus to the domestic economy."
"However, such actions are not just confined to the domestic economy, and influence on domestic assets, but create asset price rallies on a global basis."
"We think there’s the possibility of just 'shutting your eyes and buying beta' and making money, which before everything that has happened in Japan, wasn’t the case," he said.
Roberts runs the Kames Strategic Bond and Kames Sterling Corporate Bond funds.
The corporate bond fund is top quartile over three years, with returns of 27.1 per cent, compared with 24.27 per cent from the sector average.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
However, the fund slips into the second quartile of its sector over five years, having done worse than the average fund in 2008 and 2011.
Roberts runs the Kames Sterling Strategic Bond fund with Milburn, who also heads up the £1.48bn Kames High Yield Bond fund.
While the strategic bond fund is fourth quartile over one, three and five years, the Kames High Yield bond fund is top quartile over three, five and 10.
Milburn has run it for the entirety of the period.
Over three years it has made 28.45 per cent compared with 22.98 per cent from the sector in a good period for the asset class.
Performance of fund vs sector over 3yrs
Source: FE Analytics
Milburn (pictured) says that the low default rate in the high yield sector is positive for the asset class, although in the long-run it could store up problems for the economy. "We are at the start of a re-leveraging cycle but more like 1997 or 2004 where it’s the beginning of the re-leveraging cycle rather than 2007," he said.
"It’s historically been excesses in something that have seen defaults in the high yield part of the market, such as during the credit crunch."
"For this cycle, the bad news is we are building in lower returns."
"It’s not that dodgy companies are getting debt away, there aren’t many which are realistic default candidates over the next five or six years, but there are zombie companies that will continue to create defaults over the next few years."
The current default rate on the market is 2.8 per cent, which Milburn explains is unusual; the rate usually swings between around 10 and around 1 per cent.
"The reason it’s at almost three and not 10 or 1 is the zombie companies," he said.
"We are yet to see the market price in these defaults, but the liquidity of the issuance is better – the companies themselves are OK."
The manager says that although high-beta assets are currently doing well, it is still important to be selective in stockpicking.
"It is very much a stockpicker’s market. In equity markets, the correlation between individual stocks has fallen massively, and that’s a sign the market is trading more on alpha than beta," he said.
He gives the example of New World Resources, the Czech coal miner as a company he is avoiding because of poor fundamentals, despite the bargains on offer: it has issued a profit warning and seen its bonds fall 5 per cent in one day.
Milburn says that despite the recent surge in UK index-linked bonds, the team is not positive on the asset class, joining the team from the Jupiter Merlin range on the side of those who are negative on the instruments.
The bonds saw a short-term surge when the government performed a U-turn on plans to change the measure used to calculate the coupon to a historically lower index.
This has reversed in recent days, however, and the managers say they are not tempted to get back into the asset class having sold out of the 5 per cent position they had on the strategic bond fund.
However, US index-linked securities are another matter.
Milburn says that the current rate of 2 per cent is attractive compared with a 15-year average of 2.5 per cent.
"The current level of TIPS is quite cheap relative to historic expectations of inflation."
"US CPI is calculated on a high level, so doesn’t strip out food and energy costs, and with the rise in gasoline prices it is 1.5 per cent down from 2 per cent. This is why index-linked bonds have performed very well."
"They are looking cheap on a long-term basis, but in the UK we think it’s expensive and we do not want to go near it."
The managers have a positive outlook on residential mortgage-backed securities in the US, however, and are building a position in the debt, given confidence in the recovering US housing market.