Not Your Grandpa's Bond Market

ETF providers dicsuss how to best improve fixed-income returns by looking at under-utilised asset classes

Jeremy Glaser 9 October, 2012 | 1:30PM
Facebook Twitter LinkedIn

Fixed-income investors have been stuck between a rock and a hard place for a while now. Governments’ incredibly easy money policy has sent yields plummeting, forcing many investors to accept negative real returns in their bond portfolios. And with rates so low now, fixed-income investors are vulnerable when rates start rising again (whenever that may be). So what to do? Throwing your fixed-income allocation out the window is not much of a solution for individual and institutional investors alike. The diversification benefits of fixed-income remain as important as ever. At Morningstar’s recent ETF Invest conference in Chicago, Invesco PowerShares' Kevin Petrovcik, WisdomTree's Rick Harper, and Western Asset's Matt Duda tackled how to best improve fixed-income returns by looking to what they see as under-utilised asset classes.

Don't Discount Emerging Markets
Both Harper and Duda talked about the attractiveness of emerging-markets sovereign and corporate debt, especially when compared to United States issuers. Both managers said that many domestic investors have plenty of misconceptions about emerging-markets debt; investors see it as a non-investment-grade asset class, with poor liquidity and lots of volatility. Duda says this is an outdated view. The markets in these countries have evolved rapidly and are now much higher quality and very easy to access. But the misconceptions have left the asset class under-invested, meaning there are many more areas of opportunity.

Emerging markets also have much more policy flexibility than developed markets do, underscoring the attractiveness of the asset class, says Rick Harper. Unlike countries such as the US, emerging economies have spent the last few years paying down debt and getting their fiscal houses in order. They have been de-risking and are prepared for anything the global economy throws at them. Given the better fundamentals, the solid liquidity and maturation of the markets, the managers see opportunity in both local currency and dollar-denominated debt.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Jeremy Glaser  is markets editor for, the sister site of

Audience Confirmation

By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites
© Copyright 2021 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies       Modern Slavery Statement