Sector comment: Wary investors flock back to safer sector
The IMA Global Bond sector is broad and historically bearish, consisting of funds which invest at least 80 per cent of their assets in overseas debt.
Unsurprisingly then, with signs of a global recovery in 2009, the sector steadily became a less attractive option compared with its more adventurous and volatile peers.
During 2009, assets were transferred into more bullish sectors with narrower remits as investors sought to repair some of the damages of the recession.
This year was shaping up to be much the same, with equities starting 2010 as the leading asset class, accounting for 30 per cent (£550m) of total net retail sales.
Indeed, with sectors such as IMA Global Emerging Markets returning 20.31 per cent, compared with 10.98 per cent for IMA Global Bond in the previous year to date, it is easy to see why self-assured investors were switching away from global bond funds.
However, with a W-shaped recession repeatedly predicted, money has been flooding back into a rejuvenated IMA Global Bond, highlighting nervousness as investors flock towards a sector that has historically been an excellent choice in down markets.
Indeed, fear of bloodshed in equity markets has overtaken previous investor qualms surrounding the safety of government and high-grade corporate debt instruments. Risk attitudes appear to have changed, with investors wary of falling property prices, government austerity and rising unemployment. In the face of contraction, high grade debt is now a comparatively secure bet.
Only six funds in the Global Bond sector have shed money through investor withdrawals in the past three months.
More than 30 have gained considerably from net deposits, notably Investec Emerging Markets Debt, which has gained £344.43m, or more than 30 per cent of its assets under management.
Similarly, the Dimensional Global Short Dated Bond has seen an upside of over £90m in deposits and achieved sturdy performance returning circa £25m in investment income. These positive inflows into the sector are a key indicator of an optimistic investor outlook.
If a double dip is imminent, then the outlook for global bonds is arguably enhanced in comparison with an impending bull market. This flexible sector allowed fund managers the freedom to realise excellent returns during the two most recent contractions, the 2002 dotcom crash and the banking crisis of 2008.
Funds that did particularly well during those periods were Schroder International Bond, a 3-Crown rated fund which returned 5.01 per cent in 2002 and 44.58 per cent in 2008. Similarly, Investec Global Bond returned 9.17 per cent and 44.83 per cent respectively in those troublesome years.
The Investec Global Bond, as well as achieving an excellent three-year cumulative result, has also been subject to strong net investments in the past three months.