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Invesco’s Batty: look to Eastern Europe for strong bonds

Invesco’s Batty: look to Eastern Europe for strong bonds

Countries currently running reasonable monetary policy are where investors should be placing their bond bets in the challenging market environment.

That is according to Invesco Perpetual’s, Richard Batty, who runs the Invesco Global Targeted Returns fund alongside David Millar and David Jubb.

Speaking to Citywire Selector, Batty, who currently has 8.31% allocated to the credit market, said the Citywire + rated team is looking to Eastern Europe and South America when investing in the bond market.

Batty currently has 12.66% of the fund exposed to Europe, with 2.15% of the total fund allocated to Poland.

'In a world of low interest rates, local sovereign bonds in countries such as Poland, Hungary and Mexico offer some value, especially in real terms after adjusting for local inflation rates.

'For our favoured Eastern European bond markets, the monetary policy environment is also helpful, and loose policy from the European Central Bank is providing a favourable underpinning for the region.'

Dollar appreciation

Batty said 2016 was a difficult year for emerging market currencies, with the team’s ideas of favouring the Chilean peso, the Australian and New Zealand dollar, being caught in the emerging market backdraft, following the US election.

'Some of the risks to these positions are linked to a further strengthening of the dollar, which could impact the funding ability of governments as local exchange rates fall, causing the dollar value of debt to rise.

'While investors are increasingly positioned to be long the US dollar, with further Federal Reserve interest rate hikes and fiscal easing via tax cuts from the incoming administration. This could lead to a further appreciation of the dollar in 2017.'

Batty currently has 32.56% of the fund allocated to equities, a 6.94% position in Germany, alongside 4.03% to China and 3.89% to Hong Kong, which are positions he believes are key to the success of the fund.

'The world economy continues to pick up, albeit slowly, and Europe has been one of the beneficiaries of this recovery. To reflect this, we have an equity position in Europe, with a preference for the German stock market, which did well for us last year.

'Asia also provides a compelling valuation case for investors, though the risks of a further Chinese currency devaluation are heightening.'

The Invesco Global Targeted Returns fund returned 0.1% in euro terms over the year to the end of November 2016, in the multi-strategy category. This compares to a sector average of -1.4% over the same time period.

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