Zenith has released its 2012 Fixed Interest Sector Report which contains key findings and ratings across both domestic and global fixed interest managers.
From an initial universe of 121 strategies, 59 were assigned a rating, with five of these receiving Zenith’s highest designation ‘Highly Recommended’. A further 44 were assigned a ‘Recommended’ rating, while 10 achieved an ‘Approved’ rating.
Zenith’s coverage of the Fixed Interest asset class has continued to grow, with an additional 34 ratings. This extended coverage is representative of the continued demand by investors for a more diverse range of high quality products.
Zenith notes in particular a growing presence of specialist and less constrained fixed interest opportunities spanning income-focused, absolute return, and emerging market debt.
Zenith’s View
Senior investment analyst Andrew Yap stated that “In general, managers across Zenith’s recommended list performed strongly, showing a greater propensity to generate alpha while constraining downside volatility.”
Alpha was more commonly aided by active credit strategies that benefited from a continued narrowing in global spreads. In contrast to this, we noted a more neutral approach to duration management and at a time where inflationary pressures among developed economies remain subdued.
Yap added, “We have noted a greater willingness from sector participants to diversify their portfolios into lower grade spread securities in an effort to enhance income generating potential. We attribute this market thematic to the coordinated effort by central authorities to maintain cash rates at historically low levels to spur global growth.
“This has necessitated managers reallocating capital to other market segments where an increased yield premium can be secured. While Zenith believes this ‘thirst for yield’ can in part explain the increased demand for high-yield and emerging market debt, we are also wary these exposures can impact average credit quality, a factor that can lead to increased performance volatility. With credit spreads approaching pre-GFC levels, Zenith believes the pace of contraction may slow, necessitating managers to enact a more diverse set of macroeconomic trades to drive investment outcomes.”
