Aberdeen Asset Management (Aberdeen) has changed its fixed income asset allocation to include high-yield and corporate bonds after identifying these as key areas for growth.
The asset manager has had a dramatic shift in its portfolio from zero to approximately 16 per cent exposure to high yield bonds in the past three months, Aberdeen Asset Management head of Australian fixed income Victor Rodriguez said.
“In around November, we had zero allocation to high yield,” Rodriguez said.
He noted that at the time, high yield was considered to be high risk and it was not prudent to be investing in riskier asset classes unnecessarily.
“Since then, the LTRO (long term refinancing organisation) announcement has allowed us to focus more on longer-term fundamentals for corporate debt,” he said.
“Our view is that almost regardless of the growth scenario over the next couple of years for the developed world, balanced sheets on the corporate side as opposed to the public sector side are in such healthy state, with management pretty conservative about their willingness to use those balance sheets more aggressively and are happy to sit on all that cash, but as a lender to companies it is a much more favourable backdrop.
“It’s a view we have adopted over the past two to three months and we think is now sustainable.”
Corporate bonds are also winning favour with Aberdeen.
“We love corporate bonds. We continue to like corporate bonds. We see that balance sheets are continuing to be in a very strong position,” Aberdeen Asset Management global head of fixed income Paul Griffiths he said.
The previous assumption was corporate bonds would see a much higher level of default as we move into very slow economic growth or even recession, he explained.
“But corporate has held up very well. Obviously you need to pick the right corporates, but the reason we have such as large team within our fixed income business…is to make sure we pick the right corporates,” Griffiths said.
“Many corporates are seeing improved economic position, improved balance sheet, and obviously that plays out very well from a debt perspective.”
