Global fixed income managers have increased their allocation to emerging market corporates, research from S&P Capital IQ shows, even though they account for only a small part of portfolios.
Anthony Karaminas, fund analyst at S&P Capital IQ, says the addition of emerging market corporates to global funds appears similar to that of emerging markets sovereign debt a number of years ago.
Managers seek value away from traditional asset classes that “looked stretched”, he adds.
Karaminas says: “Given the inherent risk, we do not expect corporate emerging exposure to become a large allocation.”
The research singles out the MFS’s global bond fund, which held around half the portfolio in emerging markets sovereigns, an increase from under 10% earlier in the year. Franklin Templeton funds also hold sizeable emerging markets sovereign exposure.
Global fixed income managers in general are keeping their portfolios short or neutral duration, suggesting they are cautious of interest rate movements.
The longer a bond’s duration, the higher is its sensitivity to interest rate movements.
Global fixed income managers tend to be underweight treasuries and Japanese government bonds.
However, they hold duration in selected emerging markets, such as Brazil and Mexico, in the form of nominal bonds or treasury inflation protected securities.
Their duration is decreasing in Australia and Canada, and currency exposure in those markets is now generally hedged.
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