… as managers try to cope with late stage credit cycle


At first, a few years ago, it was all about the search for yield. Now, as interest rates are finally trending up, it’s all about capital preservation. For clever fixed income managers, the aim is to find non-correlated absolute return income streams.

According to Maurice Meijers, the chief executive of Robeco in Singapore and a fixed income specialist, while the renewed volatility is great news for active managers, you need to be cautious in the search for uncorrelated investments.

On a visit to Australia last week, Meijers said that because of the late stage of the cycle – “we’re in the eighth or ninth year” – for credit managers there were many dangers.

But Robeco is betting against the consensus for global managers. Meijers says: “We are negative on the technicals. There is a massive supply of bonds at the moment. The risk for the esoteric parts of the credit markets are that investors have ventured too far out into asset classes that haven’t really been tested.

“We think that the US is on the way up, further, which is against the consensus. We think that the selling of the US dollar has been overdone. We think US inflation is not that bad…

“Australia is often explained in structural ways. We still believe in normal economic cycles. Inflation is a lagging indicator. It’s not something you can use to time your fixed income decisions.”

Robeco is tending to be relatively short duration at the moment – three to seven years out.

Throughout the Asia Pacific region, where Robeco has a better presence than most global managers, Meijers believes the Chinese fixed income market will become more attractive because of the increasing stability in the country’s economy.

“We’re seeing the early development of the opening up of the onshore bond market in China,” he says. “We are one of the first foreign managers to get a licence… With credit [in China]we are more downside [protection]orientated. On the equities side we’ve been an early mover. China’s onshore market gives us a lot of diversification.”

Meijers says that global investors tend to be “taking their chips off the table” at the moment – reducing their risk.

“I think we are too much focused on predicting the next 2008 [GFC],” he says. “The markets always front-run the economy.”