Income investors will need to look at areas they would historically not have considered if they want to get a decent income stream in the future, according to fixed income manager PIMCO.
The current economic climate of low growth and high volatility in the United States and Europe makes it harder for investors to find reasonable income levels in traditional corporate and government bonds in these markets.
"Traditionally, [income-seeking] investors would say 'oh well, if it is not fixed income, I'll move to stocks', but that is not so clear here either, because when you have a multi-speed growth world, simply moving into companies at a time where there is large belt tightening, those companies might not have very good returns either," PIMCO managing director and head of portfolio management in New York Curtis Mewbourne said yesterday in a conference call.
"To us that means looking around the globe for places where you can get high-quality investments and still get a reasonable yield. It means certainly moving away from government bonds, where interest rates are very low."
Mewbourne, who is also co-head of the emerging market portfolio management team, said sectors of the fixed income market that still offered attractive spreads included emerging market corporate bonds, corporate bonds in the financial sector as banks started to recover and the US non-agency mortgage market.
In a few cases it could also include emerging market government bonds, he said.
"An example of a place there would be Brazil, where local interest rates are still 12 per cent, so in that case it is still an attractive return versus the US where treasuries are 1 per cent," he said.
