14/02/2011
By Ilonka Oudenampsen
A majority of investors expect a further decline of inflows into the fixed income asset class in 2011, according to Fitch Ratings’ latest quarterly European fixed income investor survey.
The survey, representing the views of managers of an estimated $3.7 trillion of fixed income assets, showed that 68% of participants expect lower inflows into fixed income funds, following early signs during the last quarter of 2010 that previously strong inflows were starting to reverse.
Only 18% of investors expected no significant reallocation of money during 2011, while 8% thought the slowing of inflows would reverse quickly.
Aymeric Poizot, senior director in Fitch’s fund and asset manager rating group, said: "Fixed income is at a crossroads as investors are getting more nervous with respect to duration risk and are increasingly seeing more appealing prospects in equity. Yields are low and many expect them to rise, either because of rising inflation and the prospect of higher interest rates, or sovereign sell-off."
However, Fitch believes structural demand remains strong for fixed income, due to aging populations and regulatory trends. For example, Solvency II favours fixed income holdings over equity, notably via government bonds or short dated high grade corporates.
Within fixed income funds, the highest yielding asset classes, such as emerging market debt or corporate high yield, continue to attract money, as investors continue to seek higher yields.
Fitch also highlighted that the leverage of the vehicles that invest in fixed income remains at a low level, unlike the situation that prevailed pre-crisis. This acts as a stabilising factor, limiting the risk of sell-off of the entire asset class.
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