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Bond sectors boasting biggest H1 inflows

Citywire Investment Research reveals the three sub-sectors attracting the most net new money.

Focus on bond fund flows

Over the first half of the year there has been a surge of net inflows into fixed income funds. These have returned to favour as investors become more defensive in this current low rate and low yield investment environment.

Along with this the continuation of accommodative monetary policy, positive economic data has provided a healthy backdrop for bonds. The trend is for more risky parts of the bond spectrum which has benefitted the likes of emerging market bonds and high yield.

However, global developed allocations are also moving to the forefront as inflation fears have been muted in Europe and the US and hasn’t taken the fast upward trajectory analysts believed it would which would make these investments more appealing.

In this gallery, Citywire Investment Research take a closer look at the top three sectors in fixed income taking in the money and delve deeper to find out which managers are the most popular.

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Hottest sectors revealed

Huge amounts of money has entered funds operating a truly unconstrained approach to investing on the long-only side of the bond market. The Bonds – Global Flexible sector has taken in €24.5 billion of net inflows in the first half of this year surpassing all 271 investment sectors covered by Citywire as the most popular investment in the first half of this year.

In second place is the Bonds – Euro Short term sector, which investors have been piling in to for shorter maturity exposure in the euro-denominated, short-term fixed income market. The sector has taken in €10.5 billion over the past six months.

The fixed income sector taking third spot is Bonds – Emerging Markets Global Local Currency. Demand for more the more risky end of the bond credit spectrum continues as investors searching for that elusive yield prevails.

Over the next three slides we take a look at these sectors in more detail and reveal the managers taking in the most net inflows over the first half of 2017.

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Bonds – Emerging Markets Global Local Currency

Emerging market bonds continue to entice investors with higher yields than their developed market counterparts. The Bonds – Emerging Markets Global Currency sector is the third most popular fixed income sector in terms of net flows in the first half of 2017.

The managers topping the sector for net inflows are Sergio Trigo Paz, Michal Wozniak and Laurent Develay. The trio manage the BGF Emer Mkts Local Currency Bond fund which invests at least 70% of its assets in local currency-denominated fixed income bonds. At the end of June they had 12.02% invested in Mexico and 9.8% invested in Indonesia.

In second place are Denise Prime, Paul McNamara and Caroline Gorman, managers of the GAM Multibond - Local Emerging Bond fund. They’ve accrued estimated net flows of € 1.72 billion over the past six months, not far behind the Blackrock trio. They invest primarily in bonds issued by debtors in emerging markets and/or which are denominated in or pegged to the respective local currency.

Coming in third for net inflows are Michael Hasenstab and Laura Burakreis, co-managers of the Templeton Emerging Markets Bond fund. At the end of June they had invested 14.61% in Brazil and 10.45% in Argentina. The yield to maturity is currently at 10.31% and the average duration of the portfolio of 2.1 years.

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Bonds – Euro Short Term

Since the start of the year there has been increased interest in the short-term end of fixed income credit markets, as the future of fixed income is still uncertain due to yields remaining low and the effects of interest rate changes in various markets.

The managers attracting the most new money in the Bonds - Euro Short Term sector is Keith Ney, manager of the Carmignac Securite fund, which has seen net inflows of €2.89 billion over the first half of the year. At the end of June he had more than 56% invested in fixed rate corporate bonds and 26% invested in fixed rate government bonds. In June the fund was hindered due to its long positions in peripheral Italian and Spanish bonds, but drew strength from its limited exposure to Mexican sovereign debt.

In second position sits Christian Reiter, who runs the Deutsche Floating Rate Notes fund. He invests primarily in floating-rate bonds, short-term bonds and time deposits. At the end of June his top two holdings in his fund were Spotless Group Holdings, an Australian company providing integrated facility services in Australia and New Zealand and a2 Milk Company, which commercialises intellectual property related to a2 Milk, held at 5.42% and 4.22% respectively.

In third position are co-managers Michael Krautzberger and Christopher Allen, who run the BGF Euro Short Duration Bond fund. At the end of June they had an underweight positioning in government bonds and an overweight position in corporates.

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Bonds – Global Flexible

Funds in the Bonds – Global Flexible sector represent those with an unconstrained investment approach to long-only bonds. This sector has become very popular for investors wanting to invest in a diverse range of bonds which allow the manager to operate without constraints within the current market environment and position to gain the most alpha.

The most popular managers in this sector over the first half of this year are Pimco’s Daniel Ivascyn and Alfred Murata, who co-run the PIMCO GIS Income fund. This has taken in an eye-watering €17.52 billion of net inflows over this period.

At the end of June, the higher yielding portion of the portfolio drove returns as non-Agency MBS and high yield corporate credit added to performance. However, the higher quality portion of the portfolio detracted as exposure to US and Australian interest rates were negative for performance.

Trailing Ivascyn and Murata in second position is Ariel Bezalel, manager of the Jupiter JGF Dynamic Bond fund. This has seen estimated net flows of €3.08billion over the past six months. A fifth of the Pimco managers’ intake. Bezalel’s unconstrained strategy allows him to invest across the entire fixed income universe, including high yield, IG, government and convertible bonds to find value.

In third position for net flows is Arif Husain, manager of the T Rowe Price Dynamic Global Bond fund, which was previously called the T Rowe Global Unconstrained Bond fund. Husain has taken in a respectable €0.78 billion over the first half of the year. He currently has 75 holdings in his portfolio and has 19.2% invested in Italian issuers and around 10% in the US.

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Related Fund Managers

Ariel Bezalel
Ariel Bezalel
15/108 in Bonds - Global Flexible (Performance over 3 years) Average Total Return: 11.43%
Sergio Trigo Paz
Sergio Trigo Paz
6/125 in Bonds - Emerging Markets Global Local Currency (Performance over 3 years) Average Total Return: 8.12%
Denise Prime
Denise Prime
62/125 in Bonds - Emerging Markets Global Local Currency (Performance over 3 years) Average Total Return: -4.89%
Caroline Gorman
Caroline Gorman
63/125 in Bonds - Emerging Markets Global Local Currency (Performance over 3 years) Average Total Return: -4.89%
Laura Burakreis
Laura Burakreis
13/125 in Bonds - Emerging Markets Global Local Currency (Performance over 3 years) Average Total Return: 5.94%
Keith Ney
Keith Ney
27/139 in Bonds - Euro Short Term (Performance over 3 years) Average Total Return: 2.66%
Christian Reiter
Christian Reiter
77/139 in Bonds - Euro Short Term (Performance over 3 years) Average Total Return: 0.84%
Michael Krautzberger
Michael Krautzberger
50/139 in Bonds - Euro Short Term (Performance over 3 years) Average Total Return: 1.65%
Christopher Allen
Christopher Allen
59/177 in Bonds - Euro Short Term (Performance over 1 year) Average Total Return: 0.44%
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