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Investors flock in global currency bonds

European fund buyers have found their way back into global currency bond funds, which can invest across the bond universe while making specific currency bets.


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From June to November 2014 net inflows amounted to €6.5bn, according to Morningstar. This is a strong reversal from the previous months, when a 10-month net outflow streak totalled €8.2bn. The renewed appetite for global bond funds with a flexible allocation across currencies coincides with the largest global currency fluctuations since the introduction of the euro. The type of fund is meant for investors who would like to profit from the euro’s downward trend, but prefer to leave the allocation to a fund manager.


Lucrative dollar exposure

Increasing exposure to foreign currency looks like a smart move, as the US dollar has appreciated a staggering 19% versus the euro since June. Asset managers have spotted an opportunity in the asset class as well. According to Cerulli Associates, the American-based research firm, four out of seven best-selling funds launched in November were global currency bond funds. The top-selling fund for the month in Europe also was from the category: Deutsche Asset & Wealth Management’s BSPK Enhanced Fixed Income Strategy, which is part of the umbrella fund DB Advisors SICAV.



As the ECB announced its new QE-programme last week, global currency bond funds might welcomealt='' even stronger inflows in the months to come. But the accelerating slide of the euro versus other currencies might even have gone too far.

“It’s tempting now to bet on the euro weakening further, but it is so much of a consensus trade right now that it makes me a little wary too,” says Jaap Bouma (pictured), a senior portfolio manager at Dutch wealth manager Optimix, who has close to half of his portfolio invested in foreign currency, mainly dollars. “Our euro-dollar price target is 1.15, but the current exchange rate is even lower than that. So we are thinking about decreasing our exposure somewhat.”