Akel, who co-manages the GLG Global Corporate Bond fund, said the investment grade world should continue to outperform over the next year as fundamentals and technicals remain extremely strong.
"Rates are going nowhere and will stay low for a long time, and consequently people need to stay invested. We expect to see continued outflow out of money market funds into corporate bond funds providing significant support to the asset class," he said.
"Investment grade corporate balance sheets are still strong and companies are sitting on a lot of cash," Akel (pictured right) added.
Data from Financial Express supports the idea that corporate bonds are a better investment. Data shows that over a one year period the IMA Sterling Corporate Bond sector outperformed the IMA Global Bonds sector and the IMA UK Gilt sector.
Performance of sectors, 1-yr
Source: Financial Express Analytics
Akel said the GLG Global Corporate Bond fund is currently overweight in BBB corporate bonds because he feels BBB issuers will be less aggressive in re-leveraging as they will not want to lose their investment grade rating.
"We are underweight A and AA corporates due to valuation reasons as we do not think there is much value left on the credit side. There is also more risk of M&A activity which could hurt credit investors and this risk is not priced in at the moment. August has been the biggest month for M&A activity in the last 18 months and this is likely to continue going forward," he explained.
"A lot of corporate bonds in this area also have high dividend yielding stocks, making the equity more attractive than credit. We tend to go into regulated businesses where there is less chance of M&A activity and where visibility of cash flows is high".
Balance of holdings rated
Source: Financial Express Analytics
Commenting on opportunities on the corporate side, Akel said he has a preference for five to seven year duration bonds and hybrid structures, as these are the only areas currently yielding above five per cent in the high grade universe.
"On hybrid structures, whilst being subordinated in status, you can find yields equivalent to BB rated corporates making these securities attractive relative to their ratings and the credit quality of the issuers," he said.
Akel said he believes people are worried about investing in investment grade due to perceived lack of yield.
"However, if you do the credit work and analysis there are still opportunities without having to go for very long duration. Adjusted for risk it is a safer bet to buy a solid credit corporate bond yielding five per cent plus with a duration of around seven years rather than buying a 20 year gilt at 3.75 per cent yield," he explained.
Looking ahead, Akel said the biggest risks for investment grade bonds are rising interest rates and the possibility of rising inflation, although he does not foresee this as a problem.
"I do not think rates will move significantly for another two years, I also do not think there will be a rise in inflation, I think there is more chance of deflation. However we could get imported inflation, which is also a risk," he said.
He added that should interest rates or inflation rise the fund is protected.
"We hedge around 40-60 per cent of the fund to protect against this. Hedging is important because if interest rates do rise and hedging is not already in place it may be too late to adjust and costly for the fund. Despite our hedging policy we still manage to achieve a yield of 6.4 per cent on the fund with an average duration of six years," Akel concluded.