TEXT-Fitch:European investors’ search for carry to boost flows to corporate bond funds

(The following statement was released by the rating agency)
Feb 07 – Fitch Ratings’ latest quarterly European fixed income investor survey, representing the views of managers of an estimated USD7.1trn of fixed income assets, shows that a majorityof the region’s investors expect flows to corporate bond funds to increase in 2012.

“58% of investors said they expect funds to turn to corporate credit in 2012, in
search of carry,” said Monica Insoll, Managing Director in Fitch’s CreditMarket
Research group. “Only a small minority of 6% anticipate inflows into government
bond funds – a flight to quality.”

A limited number of respondents expect an exodus from the fixed income asset
class altogether and into other areas:11% believe funds will flow into higher
yielding segments and 5% think the safety of cash and gold will be most
appealing. The balance, or 19%, expect no significant reallocation of money in

“In a low growth environment, thepreference for regular income is a logical
investment decision. It is also encouraged by regulatory changes such as
Solvency II for insurers and demographics,”, said Aymeric Poizot, Managing
Director in Fitch’s Fund and Asset Manager Ratinggroup.

Non-euro bond funds were some of the chief beneficiaries of investor fund flows
in 2011, according to data provided by Lipper for Investment Management. By
contrast, equity and money market funds saw substantial outflows. In total, bond
funds registered EUR96.6bn of inflows (including EUR33bn of outflows from euro
bond funds) in 2011 compared to outflows of EUR125.7bn and EUR131.6bn in equity
and money market funds, respectively. The search for carry pushed investors into
non-euro corporate bonds (both investment grade and high yield) and emerging
debt funds, with aggregate EUR53bn of inflows in 2011, including EUR21bn during
H211 at a time when markets were generally in a “flight to quality” mode. More
optimismabout the ability of eurozone politicians to solve the sovereign debt
crisis is likely to also have a positive effect on the flows into euro corporate
bond funds.

The Q112 survey was conducted between 4 and 31 January. Established in 2007,
Fitch’s quarterly European Senior Fixed Income Investor Survey is a leading
indicator of investor sentiment that provides valuable insight into the opinions
of professional asset managers regarding the state of the European credit
markets. Fitchwill publish the full survey results in a report mid-February.



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