Equities have recovered from their beginning-of-year slump, and bonds, especially corporate and emerging markets, have recorded impressive gains. The loosening of the monetary environment in China and the continuation of the loose monetary policy in the USA have reduced the risk aversion of investors. In terms of asset allocation, we generally prefer default risk. Equities remain underweighted.
Bond investors are faced with a difficult environment. Do corporate bonds offer the chance of a halfway decent yield?
Stampfl: The statement that bond investors are faced with a difficult environment is actually an erroneous one. A balanced portfolio consisting of bonds from the peripheral countries and the core countries across all sectors would have seen a very good risk-adjusted performance in the past weeks and months. Also, complementing the BB segment with corporate bonds generates a certain degree of surplus yield, which in funds like Reserve Corporate causes is used to boost the development. That is like switching from winter tyres to summer tyres in spring. It facilitates a smoother running and lower fuel consumption. Or, translating it to the case of the fund, it results in a surplus yield at lower volatility.
For many institutional investors corporate bonds from emerging markets issuers have become an important instrument of portfolio diversification. Our fund management team estimates that a portfolio made up of 70% investment grade bonds and 30% high-yield bonds can yield an average 5% in the medium term. This sort of yield can hardly be achieved with fixed income papers from the industrialised nations.