Is your fund invested in 'credit crunch' bonds?

Most savers will be unaware their retirement funds are being placed into this type of instrument because fund managers rarely publish their holdings in full.

Even when firms do declare this information, it is often months out of date.

Paul Taylor, director of the firm behind the research, said: "There is a host of so called safe bond funds which are investing in risky mortgage-backed securities and we are concerned that these funds are taking too many additional risks in order to achieve higher returns.

"This is all very well for investors prepared to take risk, but most savers buy bond funds to balance out or diversify risk. Savers that want higher returns and are willing to take on more risk tend to buy shares as opposed to bonds."

Bond funds have performed well over the past five years, with the average fund returning 65pc, according to data provider Morningstar. The majority also give savers an attractive income, paying out yields in excess of 4pc, and have proved popular with savers averse to investing directly in the stock market with money needed to fund retirement.

But bond funds have struggled somewhat over the past year, as investors have favoured stock markets in response to the brightening economic picture in Britain and across the world.

As a result, a number of funds have taken on extra risk to enhance their performance. The research shows that Ballie Gifford Corporate Bond, BlackRock Corporate Bond, Kames Investment Grade bond and Twenty Four Dynamic Bond funds have over 10pc of savers' money in mortgagebacked securities, which typically yield between 4pc to 6pc. This is a lot higher than a fund manager can get on safer investments such as government bonds, with shorter-term UK government debt yielding less than 3pc.

The Telegraph asked each fund manager who holds sizeable stakes in mortgage debt for an explanation.

All the managers stressed that these bonds are now not as "toxic" as they were five years ago, when many went sour and the financial crisis erupted.

The assets favoured by bond managers are issued by reputable companies, such as Tesco and Telsec, the owner of BT telephone exchanges. Tesco, for instance, has bundled a collection of mortgages on hundreds of its stores.

Ben Edwards, who manages the BlackRock Corporate Bond fund, said: "These bonds are no longer the same beasts they were during the financial crisis. In essence you are taking a view on the strength of the company's finances as you are betting on whether the company has enough disposable cash to meet their rent or mortgage payments."

Torcail Stewart, fund manager of the Baillie Gifford Corporate Bond fund, said: "We are not betting on thousands of properties via a bank, as we feel it would not be prudent to make such a big call on the housing market and the economy.

"Instead I am taking a view on one company and their ability to remain financially secure for a number of years."

Darius McDermott of Chelsea Financial Services said: "The problem with mortgage-backed securities before the financial crisis was that groups of high-risk loans were being put together and packaged as being diversified and therefore not as risky - they were rated incorrectly."

"Today, I don't think there is anything wrong with having exposure to this asset class. Lessons have been learned."

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