A more adventurous approach to fixed income

That investors are still flocking to fixed income is nothing new, but what funds they are using to access this asset class warrants further analysis.

A more adventurous approach to fixed income

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According to Morningstar’s latest European fund flows report, bond funds took an impressive €16.95bn in August. It is high yield and emerging market debt that investors have been pinning their hopes to, though of its 71 fixed income categories a majority of 49 saw inflows in August.

Interestingly, topping the list – above high yield, global high yield, and corporate bonds – was the mysterious ‘other bond’ category, which has attracted €14.8bn year to date.

According to the report, this is a mixed bunch comprising everything from Italian target maturity funds, a few emerging market debt funds and, in particular, the Luxembourg-domiciled AllianceBernstein American Income Portfolio, which attracted an impressive €520mn in August. The fund has built quite a following across the continent by investing in the dollar-denominated investment grade and high yield space.

Gross investment

Another immensely popular fund is the European clone of Bill Gross’ US-domiciled Pimco Total Return Bond Fund, which brought in a staggering €1.21bn of fresh money in August alone to top the fund sales rankings; it’s year-to-date inflows total is €5.31bn.

Fixed income funds take top billing in the top 10 of funds sold across Europe in August. Other groups with funds that feature include Norway-based KLP Investments, Natixis, and Allianz through its US High Yield fund, managed by US subsidiary NFL.

For UK retail investors, probably the best-recognised fund is Richard Woolnough’s M&G Optimal Income Fund, which ranks 10 with a healthy €450m of inflows in August (€3.58bn year to date). However, in the absolute return space the ever-popular Standard Life GARS fund is also selling well.

I know some asset allocators despair about investors’ – both institutional and retail – continued reliance on fixed income, a perceived safe haven, when equities, they say, offer much better value.

Still, it’s clear that investors have moved on since the post-credit crisis mass migration into vanilla corporate and government bond markets, as demonstrated by the popularity of the more adventurous strategic bond, absolute return, high yield and emerging market debt funds.
 

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