While nominal government bonds have witnessed strong outflows in recent months, inflation-linked bonds saw their highest monthly net inflows ever in October. Is this revival going to last?
As part of their ongoing search for yield, European investors are intending to increase their exposure to emerging market debt. While ready to take on a bit more volatility, they still shy away from taking on duration exposure in the region.
Barcelona’s investors are remarkably unanimous in their fixed income allocation. Almost all of them are overweight short-duration bonds and eight in 10 interviewees are planning to decrease their allocation to long-duration European sovereign debt.
In its latest Flow Show note, Bank of America Merrill Lynch pointed out that, at current rates, it would take you 1387 years to double your savings in a 1-year German deposit account.
Fearing that the current preoccupation with long/short equities will lead to short trades becoming too crowded, José Luís Borges insists on his long/short funds being market-neutral. However, the Lisbon-based head of institutional portfolios at BPI Gestão de Activos is otherwise happy to be overweight equities.
Some investors replace part of their fixed income holdings with market-neutral equity. Though these funds are supposedly uncorrelated to the equity market, it’s better to choose a diversified approach, argues Rui Machado, alternative investments director at IM gestao de ativos in Lisbon.
Fund selectors expect an annual return of less than 2% from their bond portfolios over the next five years. The Great Rotation is therefore finally happening. However, it’s not from bonds to equities, but to absolute return.
The equity markets have only just stopped falling, but fund buyers are already preparing for the next market correction. Eight in 10 of delegates at Expert Investor’s Pan-European Congress in Rome expect equity markets to repeat their more than 10% falls before the end of the year.
The start of the year has been rough for equity markets, but investors in Barcelona expect another market plunge before summer. They are also hedging their bets politically, it seems, as the uncertain investment outlook has prompted many to drop their support for independence.
Portugal’s fund selectors are switching part of their bond allocations to absolute return funds. They now have between 10% and 15% of their portfolios allocated to absolute return, and that share is rising.