ANNOUNCEMENT: Expert Investor is now PA Europe. Read more.

Investors prefer short-duration in EM debt

As part of their ongoing search for yield, European investors are intending to increase their exposure to emerging market debt. While ready to take on a bit more volatility, they still shy away from taking on duration exposure in the region.


PA Europe

According to a recent poll by NN Investment Partners among European institutional investors, short-duration bonds are twice as popular with investors as long-duration bonds. Some 57% of the 86 respondents believe short-duration bonds currently offer the best value for investors. This compares to just 31% believing long-duration bonds are the best bet. Apparently, investors are fearful of the impact of a Fed rate hike on the asset class, and do not believe further easing by local central banks can offset that.

Investors seem, however, agnostic about having hard or local currency exposure, and only 40% allocate separately to either, according to the same survey.

A relative bet

Recent investment sentiment research by Expert Investor has shown increased appetite for emerging market debt, with a third of Europe’s fund buyers planning to increase their exposure. Across Europe, demand has already shot up, and over summer the asset class saw record inflows.

This increased appetite is, however, very much of a relative nature: emerging market debt is seen as attractive by many merely because other bonds seem rather unexciting investments at the moment. This is what fund selectors have been telling our researchers, and it is confirmed by the NN IP survey: two thirds of respondents believe the UK’s Brexit vote and/or increasing political fractures in Europe have made emerging market debt a more compelling investment.  

“EMD continues to gain traction among investors who are attracted by its diversification benefits, particularly in the light of current ‘big’ events in developed markets such as the impact of Brexit on the rest of the EU and also possible Fed rate rises,” said Marco Ruijer, lead portfolio manager for EMD at NN IP.