Survey reveals surging demand for global fixed- income strategies
07 December 2012
By Asia Asset Management
Forty-three percent of institutional investors worldwide will likely increase exposure to global bond strategies in the coming years, according to a Pyramis Global Advisors survey of pension schemes and other institutions from Europe, Asia and North America. The respondents oversee more than US$5 trillion in assets.
Yields in many developed markets are extremely low, causing institutional investors from Europe to Asia to look beyond their home markets for fixed-income strategies that can deliver higher yields. In Europe, 38% of investors surveyed said they will likely increase allocations to non-domestic fixed-income strategies. The trend is even more pronounced in Asia, with 54% of investors indicating plans to increase exposure to non-domestic fixed-income strategies.
“With historically low yields in many safe haven bond markets and increased credit risk in a number of European countries, it is not surprising that many institutional investors are beginning to look beyond their borders,” said Charlie Morrison, president of fixed income.
Growing demand for emerging market debt
Globally, 24% of investors surveyed said they will increase allocations to emerging market debt (EMD) over the next few years.
• 37% of Asian institutional investors plan to increase allocations to hard currency EMD while 33% will likely increase exposure to local currency EMD.
• 47% of European institutional investors plan to increase allocations to local currency EMD, while 36% will likely increase exposure to hard currency EMD.
• 11% of US institutional investors plan to increase allocations to local currency EMD while 13% will likely increase exposure to hard currency EMD.
• 15% of Canadian investors will likely increase exposure to EMD.
“The trends for emerging market debt remain positive,” said Tom Hense, chief investment officer of the high income division. “Attractive yields and improving credit fundamentals are fuelling investor demand in these markets.”
Currency and derivatives policies evolving
The 2012 survey also indicated changing attitudes toward currency hedging. Traditionally seen as a way to hedge risk, currency is now seen by many investors as a potential source of alpha as well. This trend is most apparent in Asia, where 47%of investors surveyed view currency as both an added risk to the portfolio and a potential source of alpha. This view was also held by 30% of the investors surveyed in Europe, followed by 24% of the respondents in Canada and 21% of the survey participants in the US.
The use of derivatives, which fell out of favour after the financial crisis in 2008, is once again on the rise. Sixty-four percent of all investors surveyed allow their managers to use derivatives. Of those surveyed, 47% use derivatives for downside protection, 43% use them to tactically adjust beta exposure and 42% use them to lengthen duration.
About the survey
Pyramis Global Advisors conducted its survey of institutional investors during June and July 2012, including 632 investors in 16 countries (193 US corporate pension plans, 109 US government pension plans, 92 Canadian pension plans, 149 European and 89 Asian institutions, including pensions, insurance companies and financial institutions).
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