The 2014 Zenith Global Fixed Interest sector review, set to be released this week, noted that 2013 was a difficult year for the active managers on Zenith's approved list “both in terms of absolute performance and outperformance”.
“This was a reflection of the lower returns broadly available from fixed income markets as well as the more volatile market conditions, created in large part by central bank activity,” said the report.
In fact, 2013 has provided investors with a “possible preview” of the future of global fixed interest markets, Zenith said.
The report noted that central banks are looking to remove stimuli from economies that are perceived to be recovering, which means long-term rates will cease to be anchored; volatility is becoming more prevalent in emerging markets; and emerging market debt is becoming more “idiosyncratic”.
“Cognisant of this more challenging environment, fund managers have sought to construct fixed interest solutions that are more capable of navigating the evolving fixed interest environment than more traditional, benchmark relative offerings,” said the report.
Fund managers have achieved this end through a “number of ways”, according to Zenith.
“Firstly, they have relaxed or removed the majority of constraints, particularly in regards to duration, sector and country limits. Of particular note is the ability of many of these funds to assume a negative duration position,” the report said.
“Secondly, they have typically removed the link to traditional benchmarks by adopting a cash (or equivalent) benchmark.”
To accommodate the new strategies being put in place, Zenith has added a new 'unconstrained' fixed interest category to its 2014 report.
“This has been driven by the number of new funds that have been or are about to be offered to market by fund managers,” said the report.
