This is a sponsored article from AXA Investment Managers.
Traditional safe havens in the bond market have been battered by the winds of economic change. Investors need to diversify and look further afield at a time when interest rate rises are looming and yields on corporate and government bonds in developed markets are at historic lows.
As a result of this paradigm shift, attention has turned to emerging market (EM) short duration bonds, which combine flexibility and liquidity with the prospect of better yields than those found in developed markets, according to market specialist AXA Investment Managers (AXA IM).
“EM short duration bonds may offer an attractive risk return profile, benefiting from comparatively low volatility by their short duration nature,” says Sailesh Lad, Manager of the AXA IM Emerging Markets Short Duration Bonds strategy.
“They are less sensitive to interest rate movements and may have the added advantage of a clearer visibility of cash flows. The opportunity set is large and plentiful across the credit spectrum in both sovereign and corporate debt despite the maturity restriction.”
The EM bond market boasts four potential compelling advantages for investors, according to AXA IM:
- SIZE: It is large and liquid, covering over US$1.7 trillion of debt.
- DIVERSITY: It has many different countries within the asset classes to choose from, including hard and local currency government bonds, corporate bonds and FX, ranging from quality investment grade to high yield.
- OPPORTUNITY: It provides opportunities no matter where the economic cycle is, as some EM countries benefit from strong commodity prices while others take advantage of comparatively low commodity prices.
- PERFORMANCE: Some Brazilian corporate issues have yielded as much as 9% while some bonds issued by the Indonesian government in their local currency yield around 7%.
They carry risk too, however. EM countries are sometimes subject to political instability, commodity price volatility and changes in developed central bank monetary policy that can trigger capital flight and currency depreciation.
But default rates in EM markets are generally low and risks can best be managed by broad diversification and, in particular, strong active management, AXA IM says. Thus, the critical difference lies in differentiation and the execution of the strategy.
“We have an extensive research department which we leverage off for fundamental analysis of individual corporate and sovereign credits,” points out Lad.
“We are very conscious of sentiment and technicals driving both the market and individual credits. Having this awareness means one should be able to react to fundamental shifts, especially when you marry it with a good understanding of market liquidity.”
AXA IM, one of the market leaders in short duration fixed income strategies, has a 15-year history in this space and manages more than EUR 26 billion (as of 31 October 2017).
Sources: AXA IM as at November 2017
This is for information purposes only and does not constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services and should not be considered as a solicitation or as investment advice.
The content herein may not be suitable for retail clients. No financial decisions should be made on the basis of the information provided.
In Singapore, this document has been issued by AXA Investment Managers Asia (Singapore) Ltd. (Registration No. 199001714W). In other countries, this document has been issued by AXA Investment Managers Asia Limited. References to “AXA IM Asia” below shall be references to AXA Investment Managers Asia (Singapore) Ltd. or AXA Investment Managers Asia Limited as appropriate. This document and the above-mentioned website have not been reviewed by the SFC.
This document has been prepared and issued for institutional/professional investors only, and not intended for general circulation. It is strictly confidential, and must not be reproduced, circulated, distributed, redistributed or otherwise used, in whole or in part, in any way without the prior written consent of AXA IM Asia. It is not intended for distribution to any persons or in any jurisdictions for which it is prohibited.
Such information may be subject to change without notice. The data contained herein, including but not limited to any backtesting, simulated performance history, scenario analysis and investment guidelines, are based on a number of key assumptions and inputs, and are presented for indicative and/or illustrative purposes only.
The information contained in this document is not an indication whatsoever of possible future performance and must be considered on this basis. Information herein may be obtained from sources believed to be reliable. AXA IM Asia has reasonable belief that such information is accurate, complete and up-to-date. Any views, opinions or recommendations (if any) that may be contained in such information, unless otherwise stated, do not reflect or constitute views, opinions or recommendations of AXA IM Asia.
This document has been prepared without taking into account the specific personal circumstances, investment objectives, financial situation or particular needs of any particular person. Nothing contained within this document shall constitute an offer to enter into, or a term or condition of, any business, trade, contract or agreement with the recipient or any other party. This document shall not be deemed to constitute investment, tax or legal advice, or an offer for sale or solicitation to invest in any particular fund. If you are unsure about the meaning of any information contained in this document, please consult your financial or other professional advisers. The data, projections, forecasts, anticipations, hypothesis and/or opinions herein are subjective, and are not necessarily used or followed by AXA IM Asia or its affiliates who may act based on their own opinions and as independent departments within the organization.
Investment involves risks. You should be aware that investments may increase or decrease in value and that past performance is no guarantee of future returns, you may not get back the amount originally invested. Investors should not make any investment decision based on this material alone.
© 2017 AXA Investment Managers. All rights reserved.
This is a sponsored article from AXA Investment Managers.