The funds are customised investment grade solutions aimed at European insurance investors seeking higher yield in a low interest rate environment, for whom diversification, credit quality and solvency capital requirements are key considerations. They provide the opportunity for investors to participate in Asian economic and financial development via an active, fundamental approach designed to unlock potential opportunities in the region’s fixed income markets.
The investment approach includes macroeconomic analysis, valuation factors and sentiment indicators, to exploit the broad determinants of market performance: duration, yield curve positioning and credit selection. It incorporates a proprietary credit scoring model which has a zero default rate track record since it was introduced in 2002, after Adeline Ng, Head of Asian Fixed Income, joined the company. Investments are primarily in Asia ex-Japan fixed income securities - primarily US denominated credit - hedged into Euro. With a focus on investment grade, currency hedging and overall portfolio diversification, the aim is to optimise investors’ solvency capital requirements. Investors are also likely to be attracted by the expectation of higher risk-adjusted returns from Asian fixed income, along with the growth potential offered by continuing structural demand.
Adeline Ng, Head of Asian Fixed Income at BNP Paribas Investment Partners, comments:
“The growth of the Asian fixed income market has coincided with investors extending their universe in the hunt for yield within the ongoing low interest rate environment, as they have recognised its increasing credit quality, very low default rates and improved liquidity. All major Asian countries now have an investment grade rating from one or more of the three major ratings agencies. This is a significant transition compared to 10 years ago, and the region’s fundamentals are now the strongest in the emerging markets universe. With the market worth in the region of USD9 trillion and now firmly established as a separate asset class, Asian fixed income has evolved into a source of yield enhancement for insurance investors for whom solvency capital requirements are a key consideration.”
BNP Paribas Investment Partners has around USD30 billion in Asian fixed income, managed by almost 50 investment professionals each with an average of more than 10 years’ experience. The company’s track record dates back to 1998, since when Asian fixed income has progressed from being a niche asset class to a strategic allocation in investors’ portfolios across the globe.
Adeline Ng continues:
“With the widespread expectation that the US Federal Reserve will begin to raise interest rates in the coming months, credit spread compression and higher yields relative to other markets may cushion returns when the interest rate cycle does turn. The Flexi I Bond Asia Investment Grade and Flexi I Bond Asia Investment Grade Plus funds can help to meet the demands of those investors who require yield enhancement without giving up credit quality.”