Corporate bonds are less prevalently represented in many standalone investment products, according to new research by Fisch Asset Management.
This was the finding in its ‘Global corporate bonds: Effective diversification across regions and ratings report’, which higlighted a notable lack of investment products that capture the global corporate bond spectrum in the way the MSCI World Index does for equities, despite corporate bonds consistently outperforming sovereign bonds since 2002 with increased volatility.
The report found that corporate bonds are critical in the investment universe, rewarding investors with substantial long-term returns and compensating for their higher risk profile than sovereign bonds.
Additionally, the report found asset managers often compartmentalise their strategies into developed market investment grade, high yield and emerging market corporate bonds.
Fisch Asset Management found numerous factors determine the return on a corporate bond portfolio. These include credit quality, interest rate sensitivity and currency dynamics. Active management that spans the full spectrum of corporate bonds offers investors a more comprehensive range of options, potentially leading to better diversification and excess returns.
Since no industry standard benchmark exists for strategies covering the entire corporate bond universe, the study utilised a composite index, combining indices from Bloomberg Barclays, JPM and ICE BofA ML.
Since 2002, corporate bonds have consistently outpaced sovereign bonds in returns, although they bear 25-40% more volatility, noted the report.
Lastly, high-yield bonds showcased stability across varying interest rate environments, offering a positive return in each scenario.
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