Fixed-income securities remain the investment of choice for institutional investors, with emerging markets offering significantly better prospects than Europe, according to the latest biennial study from Scope Group.
The survey of 106 institutional investors with total assets under management of EUR 535bn showed that fixed-income products account for an average 77 per cent of respondents’ assets. Of these, only 3 per cent are invested in the high-yield sector. The findings show how investment-grade fixed-income categories – sovereign, corporate and covered bonds and Schuldschein – remain the most important segment for Germany’s traditionally bond-heavy institutional investors.
More significant is that these investors are looking to emerging markets to mitigate the impact of low interest rates in the eurozone, where two thirds of investors view prospects as below-average or bad. Around 41 per cent of investors surveyed believe the outlook for developing countries’ investment-grade bonds over the next three years is good or very good.
Low interest rates are also driving a trend towards third-party mandates. Investing in more specialised asset classes such as emerging markets and convertibles typically requires the services of external managers. This trend is more prominent in real estate, where three-quarters of the EUR32 billion is held in external funds.
“As traditional sovereign bonds no longer provide adequate returns, investors are increasingly shifting towards unconventional bonds segments – such as emerging markets, convertible bonds or multi-credit approaches. Very few investors have the necessary expertise to operate in these segments themselves and therefore rely on fund solutions,” says Said Yakhloufi, head of fund analysis at Scope Group.
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