Bavarian fund buyers move back into absolute return
Even though they continue to have issues with absolute return funds, fund selectors in Munich feel forced to move back into the asset class.
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Even though they continue to have issues with absolute return funds, fund selectors in Munich feel forced to move back into the asset class.
Record-low borrowing costs are continuing to fuel a debt build-up in both developed and emerging markets. Global debt has now reached 327% of GDP, according to the International Institute of Finance (IIF), with EM non-financial corporate debt increasing at the fastest rate.
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.
Emerging market bonds have undergone a remarkably quick transformation from being one of the least loved asset classes to perhaps the most popular. This has been driven by the relative attractiveness of emerging market debt compared to developed market fixed income, but to what extent have the fundamentals of the asset class actually improved?
The popularity of bond funds was reinforced by the Brexit vote. While all fixed income asset classes saw net inflows, investors especially flocked to emerging market debt in July, according to fund flows data from Morningstar.
The split among the members of the Federal Open Market Committee about when to raise rates, as revealed by the meeting minutes, presents some fresh food for thought for investors.
In June, emerging market bonds was the only asset class to see an improvement in fund flows from the previous month.
Amid the political turmoil, Brazil has done well for fixed income investors, but questions remain around further volatility.
Corporate bond funds are strongly back in fashion after a long streak of outflows, as investor confidence inched up in March and the ECB announced the inclusion of corporate bonds in its QE programme. Emerging market debt even witnessed the biggest net monthly inflows in more than two years, according to Morningstar’s latest fund flows…
Investors are fleeing from emerging market debt, and optimism for any recovery in the near term is low, particularly for local currency government bonds.
Anybody who says that China doesn’t have a credit problem is lying because when that much credit is pumped into the system there is no way that every single loan is a sound investment, according to Schroders’ head of Asian equities Singapore, Lee King Fuei.
That bonds were not going to return a great amount of money in 2015 was not a hard call to make a year ago. But how were fund selectors and asset managers looking at fixed income at the end of last year?