Wed, Oct 1, 2014
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   |   

Banner

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. Legal - Court throws out lawsuits related to Fannie Mae, Freddie Mac profits, Insider case by SEC is a step removed from Herbalife itself, SEC grants Citigroup waivers, easing hedge-fund curbs[more]

    Court throws out lawsuits related to Fannie Mae, Freddie Mac profits From WSJ.com: A group of Wall Street investors on Tuesday suffered a blow in their attempts to sue the federal government over their treatment of the shareholders of mortgage finance giants Fannie Mae and Freddie Mac af

  2. Launches - Goldman Sachs Asset Management launches GS Long Short Fund, Western & Southern launching international hedge fund, Lansdowne Partners plans energy hedge fund, RBC Global Asset Management launches new RBC Funds (Lux) - Asia Ex-Japan Fund, PVE Capital latest credit strategy to launch on the Sciens managed account platform[more]

    Goldman Sachs Asset Management launches GS Long Short Fund From Marketwatch.com: Goldman Sachs Asset Management has announced the launch of the Goldman Sachs Long Short Fund, which pursues high conviction investment ideas in global equity markets through a fundamental, bottom-up approach

  3. CalPERS’ move might alter hedge fund fees for good[more]

    Benedicte Gravrand, Opalesque Geneva: When CalPERS, the California Public Employees’ Retirement System, announced on September 15th that it was unwinding its hedge-fund portfolio, it was seen by many as is a significant blow to the sector’s appeal. The Fund is

  4. Opalesque Exclusive: Institutions eye private credit over traditional fixed income[more]

    Bailey McCann, Opalesque New York: Investing in private insurance, realty tax receivables, or investment-grade short-term accounts receivable may not spring to mind as a means of mitigating risk in a portfolio, but one firm, New York-based BroadRiver Asset Management is out to change all that. Th

  5. Short-term trading quant fund beats S&P since '09[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: A relatively new multi-strategy, market-neutral quantitative hedge fund has managed to outperform the S&P500 and the HFRX Global since 2009. New Jersey-ba