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The struggle with their clients’ preference for bonds is a big problem for Portugal’s fund buyers at the moment.


PA Europe

There was a general agreement in the room that one of the main challenges at the moment is educating clients to change their attitude to bond investing. Both delegates and panellists at EIE Portugal in Lisbon last Thursday agreed that end investors had to lower their return expectations and increase their risk expectations across the asset class in today’s low interest rate environment. Delegates and panellists also discussed ways to persuade retail investors to invest in equities.

Risk avoidance

When the audience was polled about the question whether their clients are too conservative or not, an overwhelming 78% said they are.


“Clients still think Portuguese treasury certificates are without risk, and it’s very hard to even explain the dangers involved in bond investing to my commercial team,” a delegate said. Retail investors also seem far too positive about their prospective returns.

“Clients say they don’t want any risk – but that a return of 6% or 7% is fine for them,” said a third. 

According to another: “They don’t care about interest rate risk, perhaps because they don’t know what it is.”

In need of risk

Alain Eckmann, global head of convertible bonds at UBS Asset Management in Zurich, shared the delegates’ concerns. “Back in 1995 I managed a fund which targeted capital preservation,” he said. “Interest rates were between 5% and 6% at the time, so capital preservation was easy. Right now, the return perspectives have changed drastically. But what has not been adjusted is that people still have the impression that they can generate some kind of return without taking risk. If you want return these days, you are forced to take risk.”


Into equity?

According to Eckmann, the only way going forward is to educate clients so they adjust their expectations. Shifting part of their portfolios to equities would also be a way to better meet return expectations, but Portuguese investors traditionally shy away from the asset class.

Graeme Griffiths, senior portfolio manager at Vontobel Asset Management, said: “The way to migrate conservative investors to equity would be to pursue low volatility strategies. At the individual level, clients must be warned that the main risk they run is a longevity risk [because they can’t generate enough return in the long run by only investing in bonds].”

Crisis opportunities

While it remains to be seen how conservative investors will respond to the low returns they will generate from their risk-avoiding portfolios in the coming years, it’s quite certain they wouldn’t like to see their money invested in risky Russian equities any time soon. The panel concluded their debate by sharing their thoughts about the influence of the tensions in Ukraine on their investment decisions.

“We have a bit of a history of investing in Russia at the wrong time,” Griffiths said. “We bought IT company Yandex last summer, and actually topped up on it on the recent weakness.” Griffiths then reminded the audience they had also just bought Gazprom when Russia invaded Georgia in 2008. “It seems we are somehow a predictor of adverse macro-events.”

Eckmann of UBS sees the crisis in Ukraine mainly as an opportunity. “Each time there is turbulence somewhere, you see markets punishing everyone similarly. This also happened in Greece and Portugal during the euro crisis, but not every company there is bad.”

Click here to see a slideshow of photos taken at Expert Investor Portugal.

Platinum members can additionally view a full breakdown of the event voting data hereas well as long-term comparison graphs on the main asset classes here.

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