The European economy is pointing upwards and will register a slight cyclical rebound in the second half of 2015.
Speaking at a BlackRock’s fixed income roundtable, Citywire AAA-rated Krautzberger said a series of external factors are boosting the region’s recovery.
‘European growth will point upwards from here on. A weaker euro, the oil price drop, bank deleveraging and less austerity are all contributing to the eurozone economy,’ he said.
In this context, he thinks the European Central Bank's stimulus measures are good decision which will show Europe is equipped with the necessary toolkit for any future crisis.
‘QE can only contribute to a solution. But it came at a lucky time when other factors are definitely pushing the eurozone on a more benign path,’ he added.
Krautzberger is playing the European recovery story by adding inflation-linked bonds, as he said these provide a good degree diversification and are cheaply valued.
‘The market believes the European Central Bank will hit its inflation target in 10 years. In our opinion, this view is too pessimistic,’ he said.
Elsewhere, Krautzberger is also finding opportunities in countries set to return to an investment grade rating. ‘Ireland is on its way from periphery to a semi-core status. Portugal has a good chance of an upgrading outcome too,' he said.
He also thinks Portugal, unlike Spain with Podemos, presents a political landscape that is still dominated by traditional parties.
Meanwhile, in reference to Greece, Krautzberger believes a compromise will be found between the country and its creditors, with maybe more flexibility on the primary surplus Athens is supposed to achieve.
EM: divergence and dispersion
With regards to emerging markets, the firm's head of EM fixed income, Sergio Trigo Paz, who manages six different funds including the BGF Emerging Markets Corporate Bond fund, said four factors are impacting developing countries triggering divergence and dispersion.
‘First is volatility dispersion, as volatility no longer subsidised by the Fed has a different impact on emerging markets. Investment grade developing countries will benefit from that,’ he said.
‘Second is the US dollar strength. In reaction to it, some EM countries will cut rates, some others won’t, generating interesting opportunities for us,’ he added.
The third factor outlined by Trigo Paz is deflation fears, which will draw money into some Asian countries and Mexico.
‘The final one is the oil price. We expect it to stabilise and therefore we are neutralising our underweight oil exporters positions and adding into the investment grade oil compound.’
Over the three years to the end of January 2015, Krautzberger's €4 billion BGF Euro Bond fund returned 27.67%, while its Citywire-assigned benchmark, the Citi EuroBIG index, rose 25.71%.
Over the same analysis period, the BGF Emerging Markets Corporate Bond fund returned 24.14%, while the Cust Index CS JPM CEMBI index rose 3.81%.