The resurrection of high-yield bonds?
On the bond side, the sudden increase in appetite for high yield bonds stands out. This coincides with an uptick in net fund flows: from €-6.2bn in December last year to €3.7bn in February. Another €3.8bn in fresh net funds were added in March. The share of fund buyers planning to increase their allocation to high-yield bonds in the next 12 months also rose sharply, from 12% in December to 23% in late March.
There seem to be several reasons for the uptick in interest. The first is rather simple: in an investment universe where almost all assets are looking (much) more expensive than a year ago, this isn’t so much the case for high-yield bonds.
The second reason for the popularity of high-yield bonds is their correlation with equity. With a good number of investors reaching their maximum allocation to equities, some of them see investing in high-yield bonds as a way to gain additional equity exposure through fixed income.
“We recently took a position in high yield bonds as a part of our equity allocation,” says Rico Bosma.
The only alternative
Increasing allocation to absolute return is the final big Pan-European trend. Appetite for alternative Ucits funds has been steadily increasing for the past two years, and is now at an all-time high. Net fund flows have been positive without interruption for the past two years, and in the first quarter of 2015 alone, alternative Ucits funds registered a staggering €20bn in net inflows. Someone who is at the forefront of this trend is Tim Peeters, head of securities portfolios for the Belgian family office Portolani. He thinks that the risk-return profile of long-only investing has become generally unattractive. “I even find European equities quite expensive. We’re looking to sell and, considering there are very few other choices, these flows will predominantly go to absolute return strategies,” he says.
