UK and US bonds currently have the best credit fundamentals of any region, according to new research by NN Investment Partners.
Around three in five institutional investors said credit fundamentals in the UK (60 per cent) and the US (59 per cent) were ‘strong’ or ‘very strong’, while 33 per cent said this of both the Eurozone and Japan. Just 8 per cent and 6 per cent said this of bonds in Latin America and Asia ex Japan respectively.
Tim Dowling, Head of Credit Investments and Lead Portfolio Manager Global High Yield, at NN Investment Partners, says: “This research reflects both our view and that of most investors that the US economy is strong. We have also seen very encouraging economic releases from Europe, and we believe that Europe is transitioning to low but steady growth. The US will likely still see increasing short term rates while Europe has the potential for more quantitative easing, so technical factors are actually better in Europe. On valuation, the two markets are not too far apart when adjusted for the heavier oil and commodity exposure in the US.
“However, opportunities exist in high yield markets globally. Investors need to partner with asset managers that have the experience and processes in place to identify investment opportunities wherever they may be.”
The research also showed that investors see diversification as the most attractive attribute of high yield debt, according to 64 per cent of respondents, while 37 per cent pointed to falling default rates in the sector and 36 per cent cited credit fundamentals. Over a third (35 per cent) said valuations currently justified the extra risk inherent in the high yield sector. Only 10 per cent said high yield was not attractive at present.
Whilst yield challenges remain, NN Investment Partners believes that there are still fixed interest opportunities without investors having to ramp up risk levels. Institutional investors will benefit from a partnership with fixed income experts who have a proven track record of identifying opportunity in adversity and translating that into returns. Indeed, NN Investment Partners’ investment process is based on detailed analysis of long- and medium-term fundamentals and has been honed over more than 20 years, aiming to provide its clients with consistently high yield.
NN Investment Partners’ fixed income boutiques have experienced management teams consisting of portfolio managers, analysts and strategists. These dedicated teams have a global presence with locations in The Hague, New York, London, Atlanta and Singapore. With a proven proprietary investment process that has been honed over more than 20 years, the award-winning investment team’s experience and expertise is combined with a client-centric process that forges a partnership with customers to help them meet their investment needs through a platform of innovative products.