European fixed interest funds outperformed their equity counterparts last year despite widespread po...
European fixed interest funds outperformed their equity counterparts last year despite widespread poor positioning of funds in the sector.
The majority of funds in the offshore European fixed interest sector underperformed all major bond indices over the 12 months to the end of October 2002, according to Standard & Poor's examination of the sector.
S&P said changing growth expectations caught many fund managers on the hop. Consensus was low, with many managers loading up with government bonds to negate risk, while others increased diversification to combat volatility.
S&P noted: 'Several managers were caught out on their duration stance. Opting for a short duration position in the autumn of 2001 against their benchmark, they missed out significantly on investors switching to bonds last year as equity markets continued to slide.
'Another negative was an overweight exposure to corporate bonds. Undermined by business scandals, company failures and sliding equity markets corporate bonds experienced a torrid time, with credit spreads reaching their widest margins in three years.'
Funds that bought into Central and Eastern European bonds and played the convergence theme typically outperformed.
Portfolios such as CDC Convergence and UniEuro Aspirant outperformed their peers on the back of exposure to the strongly performing Polish and Czech markets.
Looking forward, S&P said, consensus is again low, although most fund managers believe corporate bonds to be attractively valued and equity markets likely to stabilise.
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