How to de-risk your fixed income allocation whilst aiming to maintain an attractive yield

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  • 03 mins 18 secs
Nicolas Trindade, Senior Fixed Income Portfolio Manager, AXA Investment Managers explains why a global short duration strategy appears so appealing right now given geopolitical risks amid global slowdown.

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Nicolas Trindade: Hi, my name is Nicolas Trindade and I am a fixed income portfolio manager at AXA Investment Managers. We moved from an environment in 2017 of synchronised global growth to an environment in 2019 of synchronised global slowdown. This trend has been very well illustrated, by the manufacturing PMI which are now below 50 for most developed economies meaning a contraction. This slowdown in growth has been caused by several factors, the first one being the trade war between the U. S and China, which has accelerated the process of deglobalisation. And on top of that, you also have political uncertainties across numerous countries which have weighed on consumer spending and business confidence, in such an environment, where risk assets have performed so well, we believe there is a strong case for starting to de risk your fixed income allocation and take some profits.
Now the question is how can you de risk your fixed income allocation without compromising on yield? This is where we believe a global short duration strategy can be quite attractive for clients. Why? Because by going short duration, you can reduce the negative impact of widening credit spreads meaning lower draw downs in difficult market conditions and by going global, you can get access to really attractive opportunities, by asset classes, regions, currencies and ratings.
Obviously when you go global and when you allocate to other currencies than sterling, you need to take into account hedging costs or hedging gains, as if you don't you may misallocate capital and, within the global markets within the inflation link side of the world, we like US tips and we recently allocated to French Linkers as we are quite attractive from a cross currency relative value perspective.
Within the investment grade space, we have been gradually reducing US investment grade because it has performed really strongly on a year to date basis and we've been adding to Euro investment grade because it has underperformed on the year to date basis and also because the Euro investment grade market benefits from the tailwind of the central bank buying corporate bonds. Finally within the high yield and emerging markets, we are up in quality we're allocating to defensive sectors and particularly within emerging markets, we have focused on similar names, which has to be more investment grade rated.
In a nutshell. We believe that a global short duration strategy could be one of the best options to de risk your fixed income allocation while maintaining an attractive level of yield. Thank you.