Nick Tolchard (pictured), Head of EMEA, Invesco Fixed Income
Allocations to Emerging Markets Debt (EMD) and ESGrelated bonds are on the rise. An estimated 72 percent of investors have an allocation to emerging market debt versus 49 percent observed in the 2018, revealed the annual Global Fixed Income Study by Invesco.
The in-depth report outlining sentiments discerned from interviews with 159 CIOs and fixed income asset owners globally, found 54 percent of respondents now believe ESG analysis can unlock hidden value within fixed income; the majority (51 percent) expressed concern around bond market liquidity, uncertain how bond markets would behave during more challenging periods; and almost half (43 percent) of respondents believed the end of the record-long economic cycle was a year or less away at the time of the survey.
The study surveyed fixed income investors across North America, EMEA and Asia-Pacific (APAC) with a combined AUM totalling $20trillion.
Respondents included defined benefit and defined contribution plans, sovereign wealth funds, insurers, private banks, diversified fund managers, multi-managers, and model builders.
Zainab Kufaishi, head of Middle East and Africa, Invesco, said: “Amongst our sovereign and larger institutional investors, we have noted the resilience of client portfolios through the crisis.
Long term investment horizons and thoughtful asset allocation had created robust and well diversified portfolios, meaning that even with the volatility witnessed this year, some investors have been able to take advantage of key opportunities in the fixed income markets.” The study finds another year of rising interest in emerging markets debt (EMD). A strong run, relatively attractive yields, and diversification have led investors to increase allocations to the sector. 72 percent of investors now have an allocation versus the 49 percent surveyed in the 2018 study – a 47 percent increase.
“With low yields on offer in their core portfolios, EMEA investors have piled into EMD to boost returns. 69 percent of those invested in it have done so for returns, compared to just 25 percent of North American investors, who tend to see EMD as a diversifier,” said Nick Tolchard, Head of EMEA, Invesco Fixed Income.
Moreover, investors are no longer thinking of EMD as a monolithic asset class. We’re now seeing increased interest in specific markets, which we see as a long-term trend. It’s notable that Chinese fixed income in particular is one of the best performing asset classes this year, beaten only by US Treasuries.”
