Mon, Aug 31, 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. Investing - Hedge funds suddenly find real money is back in Argentina's debt, Elon Musk buys more SolarCity stock following hedge fund manager short, BlackRock plans to get into rental-home financing[more]

    Hedge funds suddenly find real money is back in Argentina's debt From Bloomberg.com: The real money is back in Argentina. Before the country’s default in July 2014 (its second in 13 years), most long-term investors abandoned its bond market. As they rushed out, Argentina became a favorit

  2. Activist News - Carl Icahn has snapped up a huge stake in Freeport-McMoRan, and the stock is ripping, Meet Europe's best activist investor[more]

    Carl Icahn has snapped up a huge stake in Freeport-McMoRan, and the stock is ripping From Businessinsider.com: Carl Icahn has picked his next target: Freeport-McMoRan. Icahn and a group of other investors have snapped up an 8.46% stake in mining company Freeport-McMoRan, according to a j

  3. North America - Hedge fund manager Ray Dalio’s challenge to the Fed[more]

    From Newyorker.com: For some reason, Janet Yellen, the chair of the Federal Reserve, decided to skip this year’s annual Fed conference in Jackson Hole, where monetary policymakers from the United States and abroad get together with some prominent academics to discuss the big issues of the moment. Th

  4. Performance - Hedge funds set to bank millions by short selling during London share slump, The China market chaos has made this hedge fund its most money in 2 years, Odey hedge fund said to surge 9% betting against China, Hedge funds with long-held bearish views on China rack up profits, Hedge funds in U.S. seen curbing damage from August turbulence, Hedge funds collect on their predictions of a fall, How did managed futures do while the Dow was down 1000[more]

    Hedge funds set to bank millions by short selling during London share slump From TheGuardian.com: Hedge funds are set to bank tens of millions of pounds from the slump in share prices in London, having bet almost £18bn that the FTSE 100 would fall. The funds making the bets include Lansd

  5. Opalesque Exclusive: John C Head IV leaves alternative investment firm Gallery Capital, David Harrison joins as co-CIO[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: John C Head IV, former president and co-founder of Gallery Capital Management, an alternative inv

 

banner