Fri, Apr 29, 2016
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

GLG believes investors are underestimating sovereign debt risk in 'new normal' economic environment

Tuesday, April 09, 2013
Opalesque Industry Update - Investors are still underestimating the risks of investing in sovereign debt in the 'new normal' economic environment and remain over-exposed to their domestic markets, says Jon Mawby, manager of the GLG Strategic Bond Fund.

Mawby, whose fund has delivered a first quartile return of 20.8% since launch in November 2011, says that despite media attention on bond valuations and talk of a ‘Great Rotation’ out of fixed income, investors are yet to fully grasp the risks of investing in sovereign debt, particularly that of the traditional safe haven countries.

“Today, global diversification is particularly important because of the risks associated with sovereigns through the socialisation of banking system debt,” he says. “Investors are simply not used to having to think about sovereign debt dynamics in this 'new normal' environment and are probably underestimating the risks involved. They need to consider that previous safe havens have increasingly precarious fiscal balances that could lead to more ratings pressure whilst emerging market countries that were perceived as riskier investments are on improving growth and ratings trajectories.”

Against this backdrop, Mawby says investors should focus more on the relationship between fundamental strength and value, and consider funds that adopt a dynamic asset allocation process across asset classes, sectors and geographies. However, he believes this change of approach has only occurred on a limited scale both on an investor level and in terms of funds that claim to be global but are often skewed towards their domestic market.

“Portfolio diversification is one of the most important elements in modern finance yet investors routinely hold portfolios that are either fully domestic or have a substantial skew towards their home country,” he says. “That is a big issue because home bias tends to produce a much poorer investment mix. Monetary and fiscal regimes are not static and in today’s world of austerity and central bank liquidity provision the ability to allocate globally is vitally important. Being too focused in a single geography can lead to significant problems at a portfolio level, be it in terms of single issuer default risk or more broadly with the ability for portfolios to access liquidity in the most efficient manner.”

Moreover, Mawby points out that, historically, globally diversified portfolios have tended to deliver a superior return per unit of risk than geographically focused funds; a trend he expects to continue even in today’s interconnected economic environment.

“It is true that in an increasingly globalised world systemic risk results in higher correlations in times of stress,” he says. “But global bond funds remain important because they offer exposure around the globe for various types of growth regardless of where it takes place. Plus, of course, the ability to source liquidity and ideas from a global opportunity set can both increase sources of return and reduce the risk of a portfolio being reliant on the inflation and interest rate expectations of a home country.”

Press release

bc

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Hedge funds see $14.3bn outflows in Q1, CTAs and multi-strategy lead net inflows[more]

    Komfie Manalo, Opalesque Asia: The hedge fund industry saw net outflows of investor capital in the first quarter of the year, totaling $14.3bn, data from Preqin showed. This continues from the $8.9bn overall net outflows that funds recorded in Q4

  2. Performance - Blackstone profits plunge 77% as performance fees dive, Hedge fund stars' fortunes hostage to market swings, Hedge fund manager goes from billionaire to millionaire in profits plunge, Hedge funds biggest losers in SunEdison's 'magic money machine'[more]

    Blackstone profits plunge 77% as performance fees dive From FT.com: Blackstone, the world’s biggest manager of alternative investments from private equity to real estate, suffered from sharply lower performance fees amid turbulent markets in the first three months of the year, even as it

  3. Third Point calls Q1 "catastrophic" for hedge funds[more]

    Bailey McCann, Opalesque New York: The first quarter of this year was rocky for hedge funds based on aggregate performance from the industry, but now we are beginning to hear what the managers thought of it as quarterly letters make their way to investors. Dan Loeb, CEO of New York-based $17 bill

  4. Asia - Stabilization of China's capital outflows may hinge on Janet Yellen, Fink says China to do well this year as bubble threat postponed, Chinese hedge fund to invest in India’s infrastructure[more]

    Stabilization of China's capital outflows may hinge on Janet Yellen From Bloomberg.com: Whether China’s recent stabilization of its currency and capital outflows continues -- or downside pressure reignites -- may hinge in large part on Janet Yellen. If the Federal Reserve chair sticks to

  5. …And Finally - After all, judges are human too[more]

    From Newsoftheweird.com: In March, one District of Columbia government administrative law judge was charged with misdemeanor assault on another. Judge Sharon Goodie said she wanted to give Judge Joan Davenport some files, but Davenport, in her office, would not answer the door. Goodie said once the