by Ben Miller
Weighing Credit Risk
Investors are turning to corporate bonds and moving down the ratings spectrum to boost portfolios. This may be part of a strategic shift, but are they weighing credit risk properly?
For fund managers who wish to outperform the index,
corporate bonds have become an essential part of any portfolio
now that spread tightening has run its course among large
sovereigns and blue-chips. Investors are taking on greater risk
as they reach further down the ratings spectrum. So far, funds
are largely undeterred from venturing into junk territory in a
region that boasts strong fundamentals, but the threats posed
by broader problems in Europe and the US are starting to cause
"Our outperformance versus the index really comes down to
our focus on corporate credit in emerging markets," says David
Robbins, manager of the TCW Emerging Markets Income Fund, which
had the highest return among EM debt funds in the three years
to May 31, according to Lipper data.
Corporates now dominate new issuance out of LatAm as
investors seek higher yields through both dollar and...
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