Posted inNORDICSFixed Income

Finns top up on high yield bonds

The turbulent times the asset class has gone through have done little to affect their appetite, as the Finns prefer to look on the bright side.

 

Yields are now quite a bit higher than a year ago, and that’s exactly what attracts Finland’s fund buyers. Almost all interviewees are already overweight, and the majority plan to increase that further. Just one in nine plan to decrease their exposure, fearing that high yield spreads will go up.

No alternative

But these bears are a small minority: most Finnish investors simply do not see an alternative in fixed income. Emerging market debt might offer similar yields, but are deemed far more risky. Most interviewees are underweight, and some have disengaged completely, especially from EM government bonds. Those who want to increase all would do so from an underweight position, and only once the turbulence in emerging markets has lessened.

Finnish fund selectors are not keen on unconstrained bond funds. Little wonder, since they have very clear views in which bonds they want to invest. In other words, they prefer to take charge of the asset allocation themselves. 

Absolute return – A selective increase

Absolute return products are popular with most Finnish investors, though some have been put off by the high costs, disappointing returns and non-transparent strategies employed by these funds. Still 53% of respondents plan to increase exposure.

 

 

The low yield environment, and the difficulties to harvest yield as a consequence of that, is often cited as a main reason for doing so. Absolute return funds are expected to tune down the risk profile of bond portfolios which are often tilted towards high yield bonds. Only multi-strategy funds are really popular though, with half of interviewees planning to buy more. By contrast, long/short equities and bonds as well as global macro funds stand little chance with Finland’s investors.   

Part of the Bonhill Group.