At the roundtable, the role of exchange-traded funds (ETFs) in helping address the liquidity challenge and manage risk in fixed income was examined. Investors shared their experiences of using ETFs for short-term trades, tilting in portfolios and transitioning between managers.
We live in a new era of fixed income investing, with low yields and increased volatility, coupled with a lack of liquidity. Investors are reacting by being underweight core fixed income, looking further up the risk spectrum and looking at new ways to gain the desired exposures. The roundtable discussed these challenges, and heard that StatePlus and Sunsuper are both underweight core fixed income, and looking to high yield and private debt to generate returns.
The impact of Dodd Frank and Basel III is important to highlight, says Bigos.
Click here to view this article as a PDF.
“So the challenge clients are facing is: where to access the liquidity when they want it? Primary market is one source and the issuance is there as borrowers take advantage of low borrowing costs. Just recently we’ve seen increased issuance in investment grade and high yield, but those deals were on average three times oversubscribed,” she says.
“We’re conscious of taking more risk, some liquidity risk, in the search for higher returns. That said, we’re not abandoning core fixed interest all together, we need that liquidity,” says Richard Dinham, head of research at StatePlus.
