US fixed income fund managers are overweight financials, S&P Capital IQ Fund Research says in its latest sector trend paper, adding that these still yield more than industrials.
While fund managers predict spreads to shrink this year, they say they expect return to be generated through income.
Many also say they are trying to move up in credit quality whenever possible without sacrificing too much yield.
To produce extra yield while also increasing the potential for spread tightening in case of an upgrade, investment grade funds had often bought small amounts of cross over high yield names.
Even though some parts of the market are now deemed expensive, investors appear to see value in credit markets as a whole.
“Most of the fund managers we interviewed were overweight spread product relative to their indices,” says Kate Hollis, S&P Capital IQ fund analyst and sector head of fixed income. “This is a structural feature of the US fixed income fund sector, particularly for funds managed against aggregate indices.”
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