Fri, Mar 27, 2015
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. Other Voices: Does the hedge fund industry benefit society?[more]

    This article was authored by Don Steinbrugge, Chairman of Agecroft Partners, a US-based global consulting and third party marketing firm for hedge funds. It is no secret that the hedge fund industry is viewed negatively by a la

  2. Private credit comes into focus for investors[more]

    Bailey McCann, Opalesque New York: As investors look for a way out of the low yield/no yield environment, private credit is becoming an increasingly attractive asset class, according to a white paper from Bayshore Capital Advisors. Private credit has grown steadily since the financial crisis as

  3. M&A - Hedge funds no longer attractive targets for banks, reinsurers, Blackstone buys stake in Christopher Pucillo’s Solus event-driven hedge fund[more]

    Hedge funds no longer attractive targets for banks, reinsurers From Institutionalinvestor.com: Swiss RE, the world’s second-largest reinsurer, is looking to sell its 15 percent stake in Jersey, Channel Islands–based hedge fund firm Brevan Howard Asset Management. Morgan Stanley reported

  4. Opalesque Radio: Threadneedle expects continuing equity volatility this year[more]

    Benedicte Gravrand, Opalesque Geneva: Investors should expect more volatility, which is signaling a "slow moving" top to the market, KKM Financial’s founder and CEO Jeff Kilburg told CNBC on Monday. And this volatility is going

  5. Hedge funds show strong performance of 2.52% so far in 2015[more]

    Komfie Manalo, Opalesque Asia: The hedge fund industry got off to a strong start in 2015 "completely unmindful" of the poor performance last year, according to data provider Preqin. According to Preqin, following a year which saw the average he

 

banner