European woes creating fixed interest opportunities, says Zenith
The "dislocated markets" caused by Europe's sovereign debt issues are creating opportunities that quality fixed income managers can exploit, according to Zenith.
From an initial universe of 89 funds, the Zenith 2012 Fixed Interest Sector Review awarded nine funds a 'highly recommended' rating and 18 a 'recommended' rating.
The 'highly recommended' funds are:
- Perennial Fixed Income Trust
- PIMCO EQT Wholesale Australian Bond Fund
- Tyndall Australian Bond Fund
- Macquarie Income Opportunities Fund
- PIMCO EQT Wholesale Global Bond Fund
- CFS Wholesale Global Credit Income Fund
- Macquarie Master Diversified Fixed Interest Fund
- Schroder Fixed Income Fund Wholesale, and
- Kapstream Wholesale Absolute Return Income Fund.
Zenith senior investment analyst Steven Tang said the key to receiving a consistent return in the fixed income environment was to "blend" a number of high quality managers who have the "requisite skill" to exploit the current opportunities.
"Dislocated markets provide an abundance of opportunities for quality fixed income managers to exploit.
"As seen post the global financial crisis, this can set them up for strong performance once fundamentals reassert themselves and markets become less dominated by macroeconomic events," Tang said.
However, the fact that sovereign debt is largely held by European banks adds an extra layer of risk to the current crisis, Tang added.
"While the largest purchaser of the sovereign debt of any particular European country is usually the banks in that particular country, half or more of the debt of Greece, Ireland, Portugal and Italy is in foreign hands - predominantly in North European hands," Tang said.
That meant that a distressed sovereign would not only put domestic banks in danger, but would also put many European banks at risk, he added.
"Multiple sovereign defaults would imperil the entire European banking system, throwing the entire region into a severe recession or depression," Tang said.
Recommended for you
The possibility of a private credit ETF is looking unlikely for now with US vehicles seeing limited uptake, according to commentators, but fixed income alternatives exist that can provide investors with a similar return.
Ahead of the approaching end of the financial year, State Street has shared five tips for advisers who are using ETFs in their client portfolios.
The use of active ETFs in model portfolios by financial advisers is a key factor in the growth of the products for iShares, according to BlackRock.
Global asset manager BlackRock has identified bringing private markets to the wealth channel as a key business area for the firm that could generate US$500 million in revenue in the future.
